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EXHIBIT 10.14
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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
CROSSROADS SYSTEMS, INC.
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TABLE OF CONTENTS
Page
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1 ACCOUNTING AND OTHER TERMS......................................................4
2 LOAN AND TERMS OF PAYMENT.......................................................4
2.1 Credit Extensions......................................................4
2.2 Overadvances...........................................................6
2.3 Interest Rate, Payments................................................6
2.4 Fees...................................................................7
3 CONDITIONS OF LOANS.............................................................7
3.1 Conditions Precedent to Initial Credit Extension.......................7
3.2 Conditions Precedent to all Credit Extensions..........................7
4 CREATION OF SECURITY INTEREST...................................................7
4.1 Grant of Security Interest.............................................7
5 REPRESENTATIONS AND WARRANTIES..................................................7
5.1 Due Organization and Authorization.....................................7
5.2 Collateral.............................................................8
5.3 Litigation.............................................................8
5.4 No Material Adverse Change in Financial Statements.....................8
5.5 Solvency...............................................................8
5.6 Regulatory Compliance..................................................8
5.7 Subsidiaries...........................................................8
5.8 Full Disclosure........................................................8
6 AFFIRMATIVE COVENANTS...........................................................9
6.1 Government Compliance..................................................9
6.2 Financial Statements, Reports, Certificates............................9
6.3 Inventory; Returns.....................................................9
6.4 Taxes..................................................................9
6.5 Insurance.............................................................10
6.6 Primary Accounts......................................................10
6.7 Financial Covenants...................................................10
6.8 Further Assurances....................................................10
7 NEGATIVE COVENANTS.............................................................10
7.1 Dispositions..........................................................10
7.2 Changes in Business, Ownership, Management or Business Locations......11
7.3 Mergers or Acquisitions...............................................11
7.4 Indebtedness..........................................................11
7.5 Encumbrance...........................................................11
7.6 Distributions; Investments............................................11
7.7 Transactions with Affiliates..........................................11
7.8 Subordinated Debt.....................................................11
7.9 Compliance............................................................11
8 EVENTS OF DEFAULT..............................................................12
8.1 Payment Default.......................................................12
8.2 Covenant Default......................................................12
8.3 Material Adverse Change...............................................12
8.4 Attachment............................................................12
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8.5 Insolvency............................................................12
8.6 Other Agreements......................................................12
8.7 Judgments.............................................................13
8.8 Misrepresentations....................................................13
9 BANK'S RIGHTS AND REMEDIES.....................................................13
9.1 Rights and Remedies...................................................13
9.2 Power of Attorney.....................................................13
9.3 Accounts Collection...................................................14
9.4 Bank Expenses.........................................................14
9.5 Bank's Liability for Collateral.......................................14
9.6 Remedies Cumulative...................................................14
9.7 Demand Waiver.........................................................14
10 NOTICES........................................................................14
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER....................................14
12 GENERAL PROVISIONS.............................................................15
12.1 Successors and Assigns................................................15
12.2 Indemnification.......................................................15
12.3 Time of Essence.......................................................15
12.4 Severability of Provision.............................................15
12.5 Amendments in Writing, Integration....................................15
12.6 Counterparts..........................................................15
12.7 Survival..............................................................15
12.8 Confidentiality.......................................................15
12.9 Effect of Amendment and Restatement...................................16
12.10 Attorneys' Fees, Costs and Expenses...................................16
13 DEFINITIONS....................................................................16
13.1 Definitions...........................................................16
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THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated August 17,
1999, between SILICON VALLEY BANK ("Bank"), whose address is 0000 Xxxxxx Xxxxx,
Xxxxx Xxxxx, Xxxxxxxxxx 00000 with a loan production office located at 9020
Capital of Texas Hwy. North, Arboretum Xxxxx Xxx, Xxx. 000, Xxxxxx, Xxxxx 00000
and CROSSROADS SYSTEMS, INC. ("Borrower"), whose address is 0000 Xxxxxxxx Xxxx.,
Xxxxx XX-000, Xxxxxx, Xxxxx 00000.
RECITALS
A. Bank and Borrower are parties to that certain Promissory Note dated
December 11, 1998, Promissory Note dated December 23, 1997, Promissory Note
dated December 23, 1997, Promissory Note dated December 23, 1997, Promissory
Note dated December 23, 1997 and a Business Loan Agreement dated December 23,
1997, as amended (collectively, the "Original Agreement").
B. Borrower and Bank desire in this Agreement to set forth their
agreement with respect to a working capital, equipment line and term loan and to
amend and restate in its entirety without novation the Original Agreement in
accordance with the provisions herein.
AGREEMENT
The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. THIS AGREEMENT SHALL BE CONSTRUED TO
IMPART UPON BANK A DUTY TO ACT REASONABLY AT ALL TIMES.
2 LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding (i) the lesser of (A) the
Committed Revolving Line minus the Cash Management Services Sublimit or (B) the
Borrowing Base, minus (ii) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit). Amounts borrowed under
this Section may be repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to such reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.
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2.1.2 LETTERS OF CREDIT.
Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing
Base minus (ii) the outstanding principal balance of the Advances minus the Cash
Management Sublimit; however, the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed $500,000. Each Letter of Credit will have an expiry date
of no later than 180 days after the Revolving Maturity Date, but Borrower's
reimbursement obligation will be secured by cash on terms acceptable to Bank at
any time after the Revolving Maturity Date if the term of this Agreement is not
extended by Bank. Borrower agrees to execute any further documentation in
connection with the Letters of Credit as Bank may reasonably request.
2.1.3 CASH MANAGEMENT SERVICES SUBLIMIT.
Borrower may use up to $20,000 for Bank's Cash Management Services,
which may include merchant services, direct deposit of payroll, business credit
card, and check cashing services identified in various cash management services
agreements related to such services (the "Cash Management Services"). All
amounts Bank pays for any Cash Management Services will be treated as Advances
under the Committed Revolving Line.
2.1.4 EQUIPMENT ADVANCES.
(a) Through December 11, 1999 (the "Equipment Availability End Date"),
Bank will make advances ("Equipment Advance" and, collectively, "Equipment
Advances") not exceeding the Committed Equipment Line. The Equipment Advances
may only be used to finance Equipment purchased on or after 120 days before the
date of the subject Equipment Advance and may not exceed 100% of the equipment
invoice excluding taxes, shipping, warranty charges, freight discounts and
installation expense. The initial Equipment Advance shall pay off the current
outstanding principal balance under the second draw period of the Promissory
Note dated December 11, 1998 of the Original Agreement (Bank's note
#0000000000), such balance being $330,194.15.
(b) Interest accrues from the date of each Equipment Advance at the
rate in Section 2.3(a) and is payable monthly until the Equipment Availability
End Date occurs. Equipment Advances outstanding on the Equipment Availability
End Date are payable in 36 equal monthly installments of principal, plus accrued
interest, beginning on the 11th of each month following the Equipment
Availability End Date and ending on December 11, 2002 (the "Equipment Maturity
Date"). Equipment Advances when repaid may not be reborrowed.
(c) To obtain an Equipment Advance, Borrower must notify Bank (the
notice is irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1
Business Day before the day on which the Equipment Advance is to be made. The
notice in the form of Exhibit B (Payment/Advance Form) must be signed by a
Responsible Officer or designee and include a copy of the invoice for the
Equipment being financed.
2.1.5 TERM LOAN.
(a) Bank will make a Term Loan available to Borrower for the purpose of
amortizing all current Obligations under the Original Agreement (except for the
Obligations under the Original Agreement which were paid by the initial
Equipment Advance under Section 2.1.4 of this Agreement).
(b) Borrower will pay 24 equal installments of principal plus Interest
of $56,310.98 (the "Term Loan Payment"). Each Term Loan Payment is payable on
the 17th of each month during the term of the loan. Borrower's final Term Loan
Payment, due on August 17, 2001, includes all outstanding Term Loan principal
and accrued interest.
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2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1 and 2.1.2 exceed the
lesser of either (i) the Committed Revolving Line minus the Cash Management
Sublimit or (ii) the Borrowing Base, Borrower must immediately pay Bank the
excess.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. (i) Advances accrue interest on the outstanding
principal balance at a per annum rate equal to the Prime Rate; (ii) Equipment
Advances accrue interest on the outstanding principal balance at a per annum
rate equal to the Prime Rate; and (iii) the Term Loan accrues interest at a per
annum rate equal to the Prime Rate. The interest rate increases or decreases
when the Prime Rate changes. Interest is computed on a 360 day year for the
actual number of days elapsed. Bank will not compute the interest in a manner
that would cause Bank to contract for, charge or receive interest that would
exceed the Maximum Lawful Rate or the Maximum Lawful Amount. After an Event of
Default, Obligations accrue interest at the Default Interest Rate. The Default
Interest Rate is, at the Bank's options, (I) the Maximum Lawful Rate, if the
Maximum Lawful rate is established by applicable law, or (ii) the interest rate
applicable immediately prior to the occurrence of the Event of Default plus 5
percentage points, if no Maximum Lawful Rate law has been established by
applicable law; or (iii) 18% per annum; or (iv) such lesser rate of interest as
Bank in its sole discretion may choose to charge; but in no event more than the
Maximum Lawful Rate.
(b) Spreading of Interest. Due to irregular periodic balances of
principal, the variable nature of the interest rate, or prepayment, the total
interest that will accrue under this Agreement cannot be determined in advance.
Bank does not intend to contract for, charge or receive more than the Maximum
Lawful Rate or Maximum Lawful Amount permitted by applicable state or federal
law, and to prevent such an occurrence Bank and Borrower agree that all amounts
of interest, whenever contracted for, charged or received by Bank, with respect
to the Obligations, will be spread, prorated or allocated over the full period
of time the Obligations are unpaid, including the period of any renewal or
extension thereof. If the maturity of the Obligations is accelerated for any
reason whether as a lawsuit of an Event of Default or otherwise prior to the
full stated term, the total amount of interest contracted for, charged or
received to the time of such demand shall be spread, prorated or allocated along
with any interest thereafter accruing over the full period of time that the
Obligations thereafter remain unpaid for the purpose of determining if such
interest exceeds the Maximum Lawful Amount.
(c) Excess Interest. At maturity (whether by acceleration or otherwise)
or on earlier final payment of the Obligations, Bank will compute the total
amount of interest that has been contracted for, charged or received by Bank or
payable by Borrower hereunder and compare such amount to the Maximum Lawful
Amount that could have been contracted for, charged or received by Bank. If such
computation reflects that the total amount of interest that has been contracted
for, charged or received by Bank or payable by Borrower exceeds the Maximum
Lawful Amount, then Bank shall apply such excess to the reduction of the
principal balance, such excess shall be refunded to Borrower. This provision
concerning the crediting or refund of excess interest shall control and take
precedence over all other agreements between Borrower and Bank so that under no
circumstances shall the total interest contracted for, charged or received by
Bank exceed the Maximum Lawful Amount.
(d) Payments. Interest due on the Committed Revolving Line is payable
on the last day of each month. Interest due on the Equipment Advances is payable
on the 11th of each month. Bank may debit any of Borrower's deposit accounts
including Account Number 3300050395 for principal and interest payments owing or
any amounts Borrower owes Bank. Bank will promptly notify Borrower when it
debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific 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
accrue.
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2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of
$15,000 for the Committed Revolving Line due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and reasonable expenses) incurred through and after the date of this
Agreement, are payable 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 it receive the agreements, documents and fees it
requires.
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) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may 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
of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified, except where the failure to do so could
reasonably be expected to cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause reasonably be expected to cause a
Material Adverse Change.
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5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. The Accounts are bona fide, existing obligations, and the
service or property has been performed or delivered to the account debtor or its
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing
Base Certificate. All Inventory is in all material respects of good and
marketable quality, free from material defects.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers and legal
counsel, threatened by or against Borrower or any Subsidiary in which a likely
adverse decision could reasonably be expected to cause a Material Adverse
Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in 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 cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No written representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the
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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 and forecasted results.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify would reasonably be
expected to cause a material adverse effect on Borrower's business or
operations. Borrower will comply, and have each Subsidiary comply, with all
laws, ordinances and regulations to which it is subject, noncompliance with
which could have a material adverse effect on Borrower's business or operations
or would reasonably be expected to cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank; (ii) as soon as available, but no later than 120 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm reasonably acceptable to Bank; (iii) within 5 days of
filing, copies of all statements, reports and notices made available to
Borrower's security holders or to any holders of Subordinated Debt and all
reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission; (iv) a prompt report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of $100,000 or more; and (v) budgets, sales
projections, operating plans or other financial information Bank reasonably
requests.
(b) Within 20 days after the last day of each month, Borrower will
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
the form of Exhibit C, with aged listings of accounts receivable and accounts
payable and an inventory report detailing raw materials, work in progress and
finished goods.
(c) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D.
(d) At such times as an Event of Default has occurred and is continuing
Bank has the right to audit Borrower's Collateral at Borrower's expense.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.
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6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank may reasonably request. Insurance policies will be in a
form, with companies, and in amounts that are satisfactory to Bank in Bank's
reasonable discretion. All property policies will have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
will show the Bank as an additional insured and provide that the insurer must
give Bank at least 20 days notice before canceling its policy. At Bank's
request, Borrower will deliver certified copies of policies and evidence of all
premium payments. Proceeds payable under any policy will, at Bank's option, be
payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts
with Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month:
(i) QUICK RATIO. A ratio of Quick Assets to Current
Liabilities of at least 1.50 to 1.00.
(ii) DEBT/TANGIBLE NET WORTH RATIO. A ratio of Total
Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt
of not more than 1.00 to 1.00.
(iii) LIQUIDITY COVERAGE/DEBT SERVICE. A ratio of cash plus
80% of Eligible Accounts, less any outstanding Advances, divided by the
outstanding Equipment Advances and Term Loan of not less than 1.50 to 1.00. This
covenant will be replaced by a Debt Service covenant at such time as Borrower
achieves 2 consecutive quarters of profitability sufficient to achieve a 1.25 to
1.00 coverage. Debt Service is defined as EBITDA annualized on a trailing 3
month basis divided by the CMLTD plus interest.
(iv) PROFITABILITY. Borrower will have a minimum net profit of
$1.00 for each quarter, except that Borrower may suffer a loss not to exceed
$2,900,000 for the quarter ending October 31, 1999, $2,900,000 for the quarter
ending January 31, 2000, $2,900,000 for the quarter ending April 30, 2000,
$2,300,000 for the quarter ending July 31, 2000 and $1,500,000 for the quarter
ending October 31, 2000.
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank's security interest in
the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following without Bank's prior written
consent, which will 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, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
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7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related
thereto or have a material change in its ownership or management (other than the
sale of Borrower's equity securities in a public offering or to venture capital
investors approved by Bank) of greater than 25%. Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or add
any new offices or business locations.
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, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) result in a decrease of more than 25% of Tangible Net Worth.
A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 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.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, 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 reasonable be expected to have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.
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8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations within 3 days after
their due date. During the additional period the failure to cure the default is
not an Event of Default (but no Credit Extension will be made during the cure
period);
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral (other than normal depreciation) which is not covered by adequate
insurance or (ii) if the Bank determines, based upon information available to it
and in its reasonable judgment, that there is a reasonable likelihood that
Borrower will fail to comply with one or more of the financial covenants in
Section 6 during the next succeeding financial reporting period.
8.4 ATTACHMENT.
If 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 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 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 will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
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8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or xxxx of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
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.
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9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. 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 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices and Section 9-207 of
the Code, it is not liable 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.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.
9.7 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 or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Texas 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 Xxxxxx or Xxxxxxxxxx County, Texas.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF 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
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AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH 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 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.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities 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 consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement 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 while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or
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purchasers of any interest in the loans, (iii) as required by law, regulation,
subpoena, or other order, (iv) as required in connection with Bank's examination
or audit and (v) as Bank considers appropriate exercising remedies under this
Agreement. Confidential information does not include information that either:
(a) 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 (b) 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 EFFECT OF AMENDMENT AND RESTATEMENT.
This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall continue to be
outstanding under this Agreement. All security interests granted under the
Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement.
12.10 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other reasonable costs and expenses incurred, in
addition to any other relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" of a 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.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BORROWING BASE" is (i) 80% of Eligible Accounts plus (ii) the 25% of
the value of Borrower's Eligible Inventory (valued at the lower of cost or
wholesale fair market value), capped at 25% of the Borrowing Base, each as
determined by Bank from Borrower's most recent Borrowing Base Certificate.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CASH MANAGEMENT SERVICES" are defined in Section 2.1.3.
"CLOSING DATE" is the date of this Agreement.
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"CODE" is the Texas Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
"COMMITTED EQUIPMENT LINE" is a Credit Extension of up to
$1,912,205.45.
"COMMITTED REVOLVING LINE" is an Advance of up to $2,500,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CREDIT EXTENSION" is each Advance, Equipment Advance, Letter of
Credit, Term Loan, or any other extension of credit by Bank for Borrower's
benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5;
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts
that exceed that percentage, unless the Bank approves in writing,
except for those certain Accounts from Compaq, IBM, ADIC, Hewlett
Packard, Storage Tek and EMC, for which the percentage may be 100% ;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on
approval, xxxx and hold, or other terms if account debtor's payment may
be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
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(j) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only
up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"ELIGIBLE INVENTORY" is Borrower's Inventory located at its principal
place of business (or any location permitted under Section 7.2) that complies
with representations and warranties in Section 5.2, but may not include used,
returned, obsolete, consigned, work in progress, demonstrative or custom
inventory, supplies, packing or shipping materials, but may include raw
materials.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"EQUIPMENT ADVANCE" is defined in Section 2.1.4.
"EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.4.
"EQUIPMENT MATURITY DATE" is defined in Section 2.1.4.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings 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 present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LETTER OF CREDIT" is defined in Section 2.1.2.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
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"MAXIMUM LAWFUL RATE" is the maximum rate of interest and the term
"Maximum Lawful Amount" means the maximum amount of interest that is permissible
under applicable state of federal laws for the type of loan evidenced by the
Loan Documents. If the Maximum Lawful Rate is increased by statute of other
governmental action after the Closing Date, then the new Maximum Lawful Rate
will be applicable to the payments from the date of the effective date of the
rate change, unless otherwise prohibited by law.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.
"ORIGINAL AGREEMENT" has the meaning set forth in recital paragraph A.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Xxxxx'x Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or 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 security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, 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 licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
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"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is August 30, 2000.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.
"TERM LOAN" a loan of $1,351,463.75.
"TERM LOAN MATURITY DATE" is August 17, 2001.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
BORROWER:
Crossroads Systems, Inc.
By: /s/
---------------------------------------
Title:
------------------------------------
BANK:
SILICON VALLEY BANK
By: /s/
---------------------------------------
Title:
------------------------------------
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EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
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
and accessions to and proceeds thereof.
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EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
---------------------
FAX#: (000) 000-0000 TIME:
---------------------
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FROM: Crossroads Systems, Inc.
--------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
----------------------------------------------------------
PHONE NUMBER:
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FROM ACCOUNT # TO ACCOUNT #
------------------------ ----------------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
-----------------------------------
PRINCIPAL PAYMENT (ONLY) $
-----------------------------------
INTEREST PAYMENT (ONLY) $
-----------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
-----------------------------------
OTHER INSTRUCTIONS:
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All Borrower's representations and warranties in the Amended and
Restated Loan and Security Agreement are true, correct and complete in
all material respects on the date of the telephone request for and
Advance confirmed by this Borrowing Certificate; but those
representations and warranties expressly referring to another date
shall be true, correct and complete in all material respects as of that
date.
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BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
--------------------------------------- ------------------------
Authorized Requester Phone #
--------------------------------------- ------------------------
Received By (Bank) Phone #
-----------------------------
Authorized Signature (Bank)
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EXHIBIT C
BORROWING BASE CERTIFICATE
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Borrower: Crossroads Systems, Inc. Bank: Silicon Valley Bank
0000 Xxxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
Commitment Amount: $2,500,000
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ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ____ $
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2. Additions (please explain on reverse) $
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3. TOTAL ACCOUNTS RECEIVABLE $
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ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
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5. Balance of 50% over 90 day accounts $
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6. Credit balances over 90 days $
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7. Concentration Limits* $
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8. Foreign Accounts $
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9. Governmental Accounts $
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10. Contra Accounts $
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11. Promotion or Demo Accounts $
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12. Intercompany/Employee Accounts $
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13. Other (please explain on reverse) $
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14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
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15. Eligible Accounts (#3 minus #14) $
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16. LOAN VALUE OF ACCOUNTS (80% of #15) $
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* 100% for Compaq, IBM, ADIC, Hewlett Packard, Storage Tek and EMC
INVENTORY
17. Inventory Value as of $
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INVENTORY DEDUCTIONS
18. Obsolete Inventory $
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19. Any Demo Inventory $
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20. Inventory sold on consignment $
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21. Inventory with offsetting claims $
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22. Work in process $
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23. Other (please explain on reverse) $
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24. TOTAL INVENTORY DEDUCTIONS $
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25. Eligible Inventory (#17 minus #24) $
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26. LOAN VALUE OF INVENTORY (25% of #25
Capped at 25% of Borrowing Base) $
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BALANCES
27. Maximum Loan Amount (minus Cash Management
Sublimit) $
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28. Total Funds Available [Lesser of #27 or
(#16 plus #26)] $
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29. Present balance owing on Line of Credit $
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30. Outstanding under Sublimits (LC) $
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31. RESERVE POSITION (#28 minus #29 and #30) $
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The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Amended and Restated Loan and Security
Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
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BANK USE ONLY
Rec'd By:
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Auth Xxxxxx
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Crossroads Systems, Inc.
By:
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Authorized Signer
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EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
0000 Xxxxxx Xxxxx
Xxxxx Xxxxx, XX 00000
FROM: CROSSROADS SYSTEMS, INC.
The undersigned authorized officer of Crossroads Systems, Inc.
("Borrower") certifies that under the terms and conditions of the Amended and
Restated Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date. Attached are the required documents supporting
the certification. The Officer certifies that these are prepared in accordance
with Generally Accepted Accounting Principles (GAAP) consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The Officer 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.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Monthly financial statements + CC Monthly within 30 days Yes No
Annual (Audited) FYE within 120 days Yes No
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
A/R & A/P Agings + Inventory Report Monthly within 20 days Yes No
Borrowing Base Certificate Monthly within 20 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.50:1.00 _____:1.00 Yes No
Maximum Debt/Tangible Net Worth 1.00:1.00 _____:1.00 Yes No
Minimum Liquidity Coverage* Yes No
Profitability: $1 Quarterly $_________ Yes No
Losses not to exceed: $2,900,000 for the quarter ending Yes No
October 31, 1999, $2,900,000 for
the quarter ending January 31, 2000,
$2,900,000 for the quarter ending
April 30, 2000, $2,300,000 for the
quarter ending July 31, 2000 and
$1,500,000 for the quarter ending
October 31, 2000
* Cash plus 80% of Eligible Accounts, less any outstanding Advances, divided
by the outstanding Equipment Advances and Term Loan. This covenant will be
replaced by a Debt Service covenant at such time as Borrower achieves 2
consecutive quarters of profitability sufficient to achieve a 1.25 to 1.00
coverage. Debt Service is defined as EBITDA annualized on a trailing 3 month
basis divided by the CMLTD plus interest.
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COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Sincerely, Received by:
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AUTHORIZED SIGNER
Crossroads Systems, Inc.
Date:
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SIGNATURE Verified:
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---------------------------------------- AUTHORIZED SIGNER
TITLE Date:
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DATE Compliance Status: Yes No
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[LOGO]
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: CROSSROADS SYSTEMS, INC.
LOAN OFFICER: XXXX XXXXXXX
DATE: AUGUST 17, 1999
REVOLVING LOAN FEE $15,000.00
DOCUMENTATION FEE 750.00
TOTAL FEE DUE $15,750.00
==========
PLEASE INDICATE THE METHOD OF PAYMENT:
{ } A CHECK FOR THE TOTAL AMOUNT IS ATTACHED.
{ } DEBIT DDA # __________________ FOR THE TOTAL AMOUNT.
{ } LOAN PROCEEDS
BORROWER:
BY:
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(AUTHORIZED SIGNER)
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SILICON VALLEY BANK (DATE)
ACCOUNT OFFICER'S SIGNATURE
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CORPORATE BORROWING RESOLUTION
BORROWER: CROSSROADS SYSTEMS, INC. BANK: SILICON VALLEY BANK
0000 XXXXXXXX XXXX., XXXXX XX-000 0000 XXXXXXX XX XXXXX XXX. XXXXX
XXXXXX, XX 00000 ARBORETUM XXXXX XXX, XXX. 000
XXXXXX, XX 00000
I, THE SECRETARY OR ASSISTANT SECRETARY OF CROSSROADS SYSTEMS, INC.
("BORROWER"), CERTIFY that Borrower is a corporation existing under the laws of
the State of Texas.
I certify that at a meeting of Borrower's Directors (or by other authorized
corporate action) duly held the following resolutions were adopted.
It is resolved that ANY ONE of the following officers of Borrower, whose name,
title and signature is below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
------------------------- --------------------------- ------------------------
------------------------- --------------------------- ------------------------
------------------------- --------------------------- ------------------------
------------------------- --------------------------- ------------------------
may act for Borrower and:
BORROW MONEY. Borrow money from Silicon Valley Bank ("Bank").
EXECUTE LOAN DOCUMENTS. Execute any loan documents Bank requires.
GRANT SECURITY. Grant Bank a security interest in any of Borrower's
assets.
NEGOTIATE ITEMS. Negotiate or discount all drafts, trade acceptances,
promissory notes, or other indebtedness in which Borrower has an
interest and receive cash or otherwise use the proceeds.
LETTERS OF CREDIT. Apply for letters of credit from Bank.
FOREIGN EXCHANGE CONTRACTS. Execute spot or forward foreign exchange
contracts.
ISSUE WARRANTS. Issue warrants for Borrower's stock.
FURTHER ACTS. Designate other individuals to request advances, pay fees
and costs and execute other documents or agreements (including
documents or agreement that waive Borrowers right to a jury trial) they
think necessary to effectuate these Resolutions.
Further resolved that all acts authorized by these Resolutions and performed
before they were adopted are ratified. These Resolutions remain in effect and
Bank may rely on them until Bank receives written notice of their revocation.
I certify that the persons listed above are Borrower's officers with the titles
and signatures shown following their names and that these resolutions have not
been modified are currently effective.
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CERTIFIED TO AND ATTESTED BY:
X
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*Secretary or Assistant Secretary
X
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*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
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RECORDATION REQUESTED BY:
SILICON VALLEY BANK, A CALIFORNIA STATE CHARTERED BANK
0000 XXXXXXX XX XXXXX XXX. XXXXX
XXXXXXXXX PLAZA ONE, STE. 350
AUSTIN, TX 78759
)
WHEN RECORDED MAIL TO: )
)
SILICON VALLEY BANK, A CALIFORNIA STATE CHARTERED BANK )
0000 XXXXXXX XX XXXXX XXX. XXXXX )
ARBORETUM PLAZA ONE, STE. 350 )
XXXXXX, XX 00000 )
)
)
)
)
)
)
)
SPACE ABOVE THIS LINE IS FOR RECORDER'S USE ONLY
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LANDLORD'S CONSENT
THIS LANDLORD'S CONSENT IS ENTERED INTO AMONG CROSSROADS SYSTEMS, INC.
("BORROWER"), WHOSE ADDRESS IS 0000 XXXXXXXX XXXX., XXXXX XX-000, XXXXXX, XXXXX
00000; SILICON VALLEY BANK, WHOSE ADDRESS IS 0000 XXXXXX XXXXX, XXXXX XXXXX, XX
00000 WITH A LOAN PRODUCTION OFFICE LOCATED AT 0000 XXXXXXX XX XXXXX XXX. XXXXX,
XXXXXXXXX PLAZA ONE, XXX. 000, XXXXXX, XX 00000; AND _________________________
("LANDLORD"), WHOSE ADDRESS IS ___________________________________. Borrower and
Lender have entered into, or are about to enter into, an agreement whereby
Lender has acquired or will acquire a security interest or other interest in the
Collateral. Some or all of the Collateral may be affixed or otherwise become
located on the Premises. To induce Lender to extend the Loan to Borrower against
such security interest in the Collateral and for other valuable consideration,
Landlord hereby agrees with Lender and Borrower as follows.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Landlord's Consent, as this
Landlord's Consent may be amended or modified from time to time, together
with all exhibits and schedules attached to this Landlord's Consent from
time to time.
BORROWER. The word "Borrower" means CROSSROADS SYSTEMS, INC..
COLLATERAL. The word "Collateral" means certain of Borrower's personal
property in which Lender has acquired or will acquire a security interest,
including without limitation the following specific property:
INVENTORY, CHATTEL PAPER, INVESTMENT PROPERTY, ACCOUNTS, CONTRACT
RIGHTS, DEPOSIT ACCOUNTS, INSTRUMENTS, DOCUMENTS, EQUIPMENT, GENERAL
INTANGIBLES AND FIXTURES
LANDLORD. The word "Landlord" means ____________________________. The term
"Landlord" is used for convenience purposes only. Landlord's interest in
the Premises may be that of a fee owner, lessor, sublessor or lienholder,
or that of any other holder of an interest in the Premises which may be, or
may become, prior to the interest of Lender.
LEASE. The word "Lease" means that certain lease of the Premises, dated
__________________________, between Landlord and Borrower. The Lease was
recorded as follows: Unrecorded.
LENDER. The word "Lender" means Silicon Valley Bank, a California state
chartered bank, its successors and assigns.
LOAN. The word "Loan" means the loan, or any other financial
accommodations, Lender has made or is making to Borrower.
PREMISES. The word "Premises" means the real property located in
__________________________, commonly known as _____________________, and
legally described as:
REFER TO EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF.
BORROWER'S ASSIGNMENT OF LEASE. Borrower hereby assigns to Lender all of
Borrower's rights in the Lease, as partial security for the Loan. The parties
intend that this assignment will be a present transfer to Lender of all of
Borrower's rights under the Lease, subject to Borrower's rights to use the
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Premises and enjoy the benefits of the Lease while not in default on the Loan or
Lease. Upon full performance by Borrower under the Loan, this assignment shall
be ended, without the necessity of any further action by any of the parties.
This assignment includes all renewals of and amendments to the Lease or the
Loan, until the Loan is paid in full. No amendments may be made to the Lease
without Lender's prior written consent, which shall not be unreasonably withheld
or delayed.
CONSENT OF LANDLORD. Landlord consents to the above assignment. If Borrower
defaults under the Loan or the Lease, Lender may reassign the Lease, and
Landlord agrees that Landlord's consent to any such reassignment will not be
unreasonably withheld or delayed. So long as Lender has not entered the Premises
for the purpose of operating a business, Lender will have no liability under the
Lease, including without limitation liability for rent. Whether or not Lender
enters into possession of the Premises for any purpose, Borrower will remain
fully liable for all obligations of Borrower as lessee under the Lease. While
Lender is in possession of the Premises, Lender will cause all payments due
under the Lease and attributable to that period of time to be made to Landlord.
If Lender later reassigns the Lease or vacates the Premises, Lender will have no
further obligation to Landlord.
LEASE DEFAULTS. Both Borrower and Landlord agree and represent to Lender that,
to the best of their knowledge, there is no breach or offset existing under the
Lease or under any other agreement between Borrower and Landlord. Landlord
agrees not to terminate the Lease, despite any default by Borrower, without
giving Lender written notice of the default and an opportunity to cure the
default within a period of sixty (60) days from the receipt of the notice. If
the default is one that cannot reasonably be cured by Lender (such as
insolvency, bankruptcy, or other judicial proceedings against Borrower), then
Landlord will not terminate the Lease so long as Landlord receives all sums due
under the Lease for the period during which Lender is in possession of the
Premises, or so long as Lender reassigns the Lease to a new lessee reasonably
satisfactory to Landlord.
DISCLAIMER OF INTEREST. Landlord hereby consents to Lender's security interest
(or other interest) in the Collateral and disclaims all interests, liens and
claims which Landlord now has or may hereafter acquire in the Collateral.
Landlord agrees that any lien or claim it may now have or may hereafter have in
the Collateral will be subject at all times to Lender's security interest (or
other present or future interest) in the Collateral and will be subject to the
rights granted by Landlord to Lender in this Agreement.
ENTRY ONTO PREMISES. Landlord and Borrower grant to Lender the right to enter
upon the Premises for the purpose of removing the Collateral from the Premises
or conducting sales of the Collateral on the Premises. The rights granted to
Lender in this Agreement will continue until a reasonable time after Lender
receives notice in writing from Landlord that Borrower no longer is in lawful
possession of the Premises. If Lender enters onto the Premises and removes the
Collateral, Lender agrees with Landlord not to remove any Collateral in such a
way that the Premises are damaged, without either repairing any such damage or
reimbursing Landlord for the cost of repair.
MISCELLANEOUS PROVISIONS. This Agreement shall extend to and bind the respective
heirs, personal representatives, successors and assigns of the parties to this
Agreement. The covenants of Borrower and Landlord respecting subordination of
the claim or claims of Landlord in favor of Lender shall extend to, include, and
be enforceable by any transferee or endorsee to whom Lender may transfer any
claim or claims to which this Agreement shall apply. Lender need not accept this
Agreement in writing or otherwise to make it effective. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas. If
Landlord is other than an individual, any agent or other person executing this
Agreement on behalf of Landlord represents and warrants to Lender that he or she
has full power and authority to execute this Agreement on Landlord's behalf.
Lender shall not be deemed to have waived any rights under this Agreement unless
such waiver is in writing and signed by Lender. Without notice to Landlord and
without affecting the validity of this Consent, Lender may do or not do anything
it deems appropriate or necessary with respect to the Loan, any obligors on the
Loan, or any Collateral for the Loan; including without limitation extending,
renewing, rearranging, or accelerating any of the Loan indebtedness. No delay or
omission on the part of Lender in exercising any right shall operate as a waiver
of such right or any other right. A waiver by Lender of a provision of this
Agreement shall not constitute a waiver of or prejudice Lender's right otherwise
to demand strict compliance with that provision or any other provision. Whenever
consent by Lender is required in this Agreement, the granting of such consent by
Lender in any one instance shall not constitute continuing consent to subsequent
instances where such consent is required.
BORROWER AND LANDLORD ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
LANDLORD'S CONSENT, AND BORROWER AND LANDLORD AGREE TO ITS TERMS. THIS AGREEMENT
IS DATED AUGUST 17, 1999.
BORROWER:
CROSSROADS SYSTEMS, INC.
BY:
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NAME:
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TITLE:
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LANDLORD:
X
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LANDLORD'S SIGNATURE
LENDER:
SILICON VALLEY BANK, A CALIFORNIA
STATE CHARTERED BANK
BY:
----------------------------------
NAME:
--------------------------------
TITLE:
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LENDER ACKNOWLEDGMENT
STATE OF )
----------------------------------------- ) Sections
COUNTY OF )
---------------------------------------- )
This instrument was acknowledged before me on __________, 19______ by
_____________________________________, ____________________________ of Silicon
Valley Bank, a California state chartered bank, on behalf of Silicon Valley
Bank, a California state chartered bank.
Notary Public, State of Texas
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CORPORATE ACKNOWLEDGMENT
STATE OF )
----------------------------------------- ) Sections
COUNTY OF )
---------------------------------------- )
This instrument was acknowledged before me on __________, 19______ by
Name:__________________________________, Title:_____________________ of
Crossroads Systems, Inc., a Texas corporation, on behalf of said corporation
________________________________________________________________________________
of _____________________________________________ on behalf of said _____________
_____________________________________.
Notary Public, State of Texas
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LANDLORD ACKNOWLEDGMENT
STATE OF )
----------------------------------------- ) Sections
COUNTY OF )
---------------------------------------- )
This instrument was acknowledged before me on __________, 19______ by___________
__________________________, Landlord.
Notary Public, State of Texas
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