EXHIBIT 10.36
LOAN AND SECURITY AGREEMENT
CRITICAL PATH, INC.
LOAN AND SECURITY AGREEMENT
TABLE OF CONTENTS
HEADING PAGE
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1. ACCOUNTING AND OTHER TERMS........................................................... 1
2. LOAN AND TERMS OF PAYMENT............................................................ 1
2.1 Promise to Pay................................................................ 1
2.2 Overadvances.................................................................. 2
2.3 Interest Rate, Payments....................................................... 2
2.4 Fees and Expense.............................................................. 3
3. CONDITIONS OF LOANS.................................................................. 3
3.1 Conditions Precedent to Initial Credit Extension.............................. 3
3.2 Conditions Precedent to all Credit Extensions................................. 4
4. CREATION OF SECURITY INTEREST........................................................ 4
5. REPRESENTATIONS AND WARRANTIES....................................................... 4
5.1 Due Organization and Authorization............................................ 4
5.2 Collateral.................................................................... 4
5.3 Litigation.................................................................... 5
5.4 No Material Adverse Change in Financial Statements............................ 5
5.5 Solvency...................................................................... 5
5.6 Regulatory Compliance......................................................... 5
5.7 Investments................................................................... 6
5.8 Full Disclosure............................................................... 6
5.9 Subordinated Debt............................................................. 6
6. AFFIRMATIVE COVENANTS................................................................ 6
6.1 Government Compliance......................................................... 6
6.2 Financial Statements, Reports, Certificates................................... 6
6.3 Inventory; Returns............................................................ 7
6.4 Taxes......................................................................... 7
6.5 Insurance..................................................................... 7
6.6 Primary Accounts.............................................................. 7
6.7 Financial Covenants........................................................... 8
6.8 Registration of Intellectual Property Rights.................................. 8
6.9 Subordination................................................................. 8
6.10 Further Assurances............................................................ 8
7. NEGATIVE COVENANTS................................................................... 8
7.1 Dispositions.................................................................. 9
7.2 Changes in Business, Ownership, Management or Business Locations.............. 9
7.3 Mergers or Acquisitions....................................................... 9
7.4 Indebtedness.................................................................. 9
7.5 Encumbrances.................................................................. 9
7.6 Distributions; Investments.................................................... 9
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7.7 Transactions with Affiliates.................................................. 9
7.8 Subordinated Debt............................................................ 10
7.9 Compliance................................................................... 10
8. EVENTS OF DEFAULT................................................................... 10
8.1 Payment Default.............................................................. 10
8.2 Covenant Default............................................................. 10
8.3 Material Adverse Change...................................................... 10
8.4 Attachment................................................................... 11
8.5 Insolvency................................................................... 11
8.6 Other Agreements............................................................. 11
8.7 Judgments.................................................................... 11
8.8 Misrepresentations........................................................... 11
9. BANK'S RIGHTS AND REMEDIES.......................................................... 11
9.1 Rights and Remedies.......................................................... 11
9.2 Power of Attorney............................................................ 12
9.3 Accounts Collection.......................................................... 12
9.4 Bank Expenses................................................................ 12
9.5 Bank's Liability for Collateral.............................................. 12
9.6 Remedies Cumulative.......................................................... 13
9.7 Demand Waiver................................................................ 13
10. NOTICES............................................................................. 13
11. CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER......................................... 13
12. GENERAL PROVISIONS.................................................................. 13
12.1 Successors and Assigns....................................................... 13
12.2 Indemnification.............................................................. 13
12.3 Time of Essence.............................................................. 14
12.4 Severability of Provision.................................................... 14
12.5 Amendments in Writing, Integration........................................... 14
12.6 Counterparts................................................................. 14
12.7 Survival..................................................................... 14
12.8 Confidentiality.............................................................. 14
12.9 Attorneys' Fees, Costs and Expenses.......................................... 14
13. DEFINITIONS......................................................................... 15
EXHIBITS
Exhibit A - Description of Collateral
Exhibit B - Payment/Advance Request Form
Exhibit C - Form of Compliance Certificate
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT dated as of the Effective Date, between
SILICON VALLEY BANK, a California-chartered bank ("Bank") whose address is 0000
Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000, and CRITICAL PATH, INC., a
California corporation ("Borrower") whose address is 000 Xxx Xxxxxxxxxxx, Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000, provides the terms on which Bank will lend to
Borrower and Borrower will borrow from Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS.
Accounting terms not defined in this Agreement will be construed in
accordance with GAAP. Calculations and determinations must be made in accordance
with 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 other Loan Document. Capitalized terms in this
Agreement shall have the meanings set forth in Section 13.
2. LOAN AND TERMS OF PAYMENT.
2.1 PROMISE TO PAY.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of all Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Revolving Advances not exceeding at any time the
Committed Revolving Line, minus the sum of (i) all amounts then outstanding
under the Cash Management Services Sublimit, (ii) the then-outstanding principal
balance of all Revolving Advances, (iii) the Foreign Exchange Sublimit and (D)
the face amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit). Amounts borrowed under this Section 2.1.1 may
be repaid and reborrowed during the term of this Agreement.
(b) To obtain a Revolving Advance, Borrower must notify Bank by facsimile
or telephone by 12:00 p.m., Pacific Time, one Business Day prior to the day on
which the Revolving Advance is to be made. Borrower must promptly confirm the
notification by delivering to Bank a completed Loan Payment/Advance Request Form
in the form attached as Exhibit B. Bank will credit Revolving Advances to
Borrower's deposit account. Bank may make Revolving Advances under this
Agreement based on instructions from a Responsible Officer or his or her
designee, or without instructions if the Revolving Advances are necessary to
meet Obligations which have become due. Bank may rely on any telephonic 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 Revolving Advances, and all accrued and unpaid interest thereon,
are immediately due and payable.
(d) Bank's obligation to lend the undisbursed portion of the Committed
Revolving Line or any other credit available hereunder to Borrower will
terminate if, in Bank's sole discretion, there has been a Material Adverse
Change or there has occurred any material adverse deviation from the most recent
business plan of Borrower presented to and accepted by Bank prior to the
execution of this Agreement.
2.1.2 CASH MANAGEMENT SERVICES SUBLIMIT.
Borrower may use up to the entire amount from time to time available under
Section 2.1.1(a) (the "Cash Management Services Sublimit") for Bank's cash
management services, which may include
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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 at any
one time outstanding under the Cash Management Services Sublimit will reduce, on
a dollar-for-dollar basis, the amount otherwise available to be borrowed under
the Committed Revolving Line. Any amounts Bank pays on behalf of Borrower, and
any amounts that are not paid by Borrower, for any Cash Management Services will
be treated as Revolving Advances under the Committed Revolving Line and will
accrue interest at the rate for Revolving Advances. Borrower agrees to execute
any further documentation in connection with the Cash Management Services as
Bank may request.
2.1.3 FOREIGN EXCHANGE SUBLIMIT.
To the extent that the Foreign Exchange Sublimit (as calculated herein) is
not exceeded, Borrower may enter into foreign exchange forward contracts with
Bank under which Borrower commits to purchase from or sell to Bank a set amount
of foreign currency more than one Business Day after the contract date (the "FX
Forward Contract"). The Foreign Exchange Sublimit (the "Foreign Exchange
Sublimit") shall be an amount equal to 10% of the face amount of all outstanding
FX Forward Contracts; provided, however, that at no time may the Foreign
Exchange Sublimit ever exceed the Committed Revolving Line (as adjusted in
accordance with Section 2.1.1(a) hereof). The aggregate amount of the Foreign
Exchange Sublimit shall at all times reduce, on a dollar-for-dollar basis, the
amount otherwise available to be borrowed under the Committed Revolving Line.
Bank may terminate the FX Forward Contracts if an Event of Default occurs.
2.1.4 LETTERS OF CREDIT SUBLIMIT.
Bank will issue Letters of Credit for Borrower's account in an aggregate
face amount not to exceed the Committed Revolving Line, in each case minus the
sum of (i) the then-outstanding principal balance of the Revolving Advances,
plus (ii) all amounts then-outstanding under the Cash Management Sublimit plus
(iii) the Foreign Exchange Sublimit; provided, however, that the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) may at no time exceed the Committed Revolving Line. Each Letter of
Credit will have an expiry date of not 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.
2.2 OVERADVANCES.
If the sum of Borrower's Obligations under Sections 2.1.1, 2.1.2, 2.1.3
and 2.1.4 at any time exceeds the Committed Revolving Line, then Borrower will
be in an Overadvance to the extent of such excess amount. If Borrower is in an
Overadvance, then Borrower shall immediately take each of the following actions
(unless otherwise agreed to by Bank): (i) Borrower shall repay to Bank the
amount by which all outstanding principal and accrued interest relating to
Revolving Advances exceeds the Committed Revolving Line; and (ii) Borrower shall
secure its Obligations with respect to the aggregate sum of all outstanding
Letters of Credit, the Foreign Exchange Sublimit and Cash Management Services
then being utilized with cash to be held in a certificate of deposit account
with Bank in the amount that such an aggregate sum exceeds the Committed
Revolving Line, such cash to be held by Bank as Collateral until such time as
the Overadvance is repaid and Borrower's Obligations with respect to the Letters
of Credit, the Foreign Exchange Sublimit and the Cash Management Services are
satisfied.
2.3 INTEREST RATE, PAYMENTS.
(a) Revolving Advances shall accrue interest on the aggregate principal
balance thereof from time to time outstanding at a per annum rate equal to the
Prime Rate plus forty five basis points (0.45%).
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After an Event of Default, Obligations shall accrue interest at a rate equal to
five percent (5.00%) above the rate effective immediately before the Event of
Default. 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.
(b) Interest on outstanding Revolving Advances shall be due and payable in
arrears on the first day of each month. Bank will debit any of Borrower's
deposit accounts, including Account Number 3300229151, for principal and
interest payments, and any other amounts Borrower owes Bank when due. 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 shall be due on a day that is not a Business Day, the payment is due on
the next Business Day and additional fees and interest shall accrue to such
date.
2.4 FEES AND EXPENSE.
2.4.1 FACILITY FEE.
Borrower will pay Bank a fully-earned, non-refundable facility fee in the
amount of Seventy-Five Thousand Dollars ($75,000), due and payable on the
Effective Date.
2.4.2 CANCELLATION FEE
In the event that Borrower elects to cancel the credit facility available
to it under this Agreement within six (6) months after the Effective Date,
Borrower shall pay bank a cancellation fee in the amount of Seventy-Five
Thousand Dollars ($75,000), due and payable on the date as of which Borrower
cancels the credit facility.
2.4.3 UNUSED COMMITMENT FEE
Borrower will pay Bank an Unused Commitment Fee equal to forty five basis
points (0.45%) per annum (annualized) of the average unused portion of the
Committed Revolving Line. Such Unused Commitment Fee shall be payable in
quarterly installments, on the first day of the month following the end of each
fiscal quarter of Borrower, in an amount equal to the product of (i) the average
unused portion of the Committed Revolving Line during such fiscal quarter
multiplied by (ii) eleven and one-quarter basis points (0.1125%).
2.4.4 LETTER OF CREDIT FEE.
Borrower will pay the Letter of Credit Fee at the time of the issuance or
renewal of each Letter of Credit, and on each anniversary thereof.
2.4.5 BANK EXPENSES.
Borrower will pay all Bank Expenses (including reasonable attorneys' fees)
incurred through and after the date of this Agreement. All Bank Expenses are due
and payable upon demand from Bank.
3. CONDITIONS OF LOANS.
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the first Credit Extension is, in addition to
the other applicable conditions precedent set forth in this Section 3, subject
to the satisfaction of the following conditions precedent:
(a) Bank shall have received the agreements, documents and fees that it
requires in accordance
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with this Agreement.
(b) Bank shall have received from Borrower evidence satisfactory to Bank
showing Bank as loss payee on all of Borrower's insurance policies pursuant to
Section 6.5.
(c) Bank shall have received from Borrower evidence satisfactory to Bank
that a lien on the Collateral in favor of Union Bank has been released.
(d) Bank shall have entered into an account control agreement with Munder
Capital in form and substance acceptable to Bank.
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 satisfaction of the following conditions
precedent:
(a) Bank shall have timely received a Loan Payment/Advance Request Form.
(b) The representations and warranties in Section 5 shall be true on the
date of the Loan Payment/Advance Request Form, and on the effective date of each
Credit Extension, and no 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
of Section 5 remain true.
4. CREATION OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and the
performance of each of Borrower's duties under the Loan Documents. Except for
Permitted Liens, Bank's 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
jurisdiction of formation and is qualified and licensed to do business in, and
in good standing in, each jurisdiction in which the conduct of its business or
its ownership of property requires that it be qualified, except where the
failure to do so could not reasonably be expected to cause a Material Adverse
Change. Borrower is a California corporation.
The execution, delivery and performance by Borrower of the Loan Documents
have been duly authorized and do not conflict with Borrower's formation
documents or constitute an event of default under any material agreement by
which Borrower is bound. Borrower is not in default under any agreement to which
or by which it is bound in which the default could reasonably be expected to
cause a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to its Collateral, free of Liens except Permitted
Liens. The Accounts are
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bona fide, existing obligations, and the service or property that is the subject
of each Account 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. All Inventory is in all material respects of good and
marketable quality, free from material defects. Borrower owns or possesses
adequate rights to use all of its respective Intellectual Property, except for
non-exclusive licenses granted to its respective customers in the ordinary
course of business. Each Patent is valid and enforceable, no part of the
Intellectual Property has been judged invalid or unenforceable (in whole or in
part), and 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, if the
subject of an unfavorable decision, ruling or finding, could not reasonably be
expected to cause a Material Adverse Change.
5.3 LITIGATION.
Except as described in Borrower's filings with the SEC, there are no
material actions or proceedings pending or, to the knowledge of Borrower's
Responsible Officers, threatened by or against Borrower or any Subsidiary in
which an adverse decision could reasonably be expected to cause a Material
Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All separate or consolidated financial statements for Borrower and any
Subsidiary delivered to Bank fairly present in all material respects such
entity's separate and consolidated financial condition and separate and
consolidated results of operations. There has not been any Material Adverse
Change 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. Borrower is not
left with unreasonably small capital after the transactions contemplated in this
Agreement, and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Neither Borrower nor any Subsidiary is an "investment company" or a
company "controlled" by an "investment company" under the Investment Company
Act. Neither Borrower nor any Subsidiary is engaged, as one of its material
activities, in extending credit for margin stock (under Regulations T and U
promulgated by the Board of Governors of the Federal Reserve System). Borrower
has complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules applicable to Borrower,
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 in a legal manner in compliance with all
environmental laws and regulations. Each of 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. Each of 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.
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5.7 INVESTMENTS.
Borrower owns no 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 statements contained in the certificates or statements not misleading in
light of the circumstances in which they were made, 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.
5.9 SUBORDINATED DEBT.
All existing Indebtedness of Borrower to entities other than Bank,
including but not limited to the Indebtedness of Borrower pursuant to those
certain 5-3/4% Convertible Subordinated Notes due April 1, 2005 that were issued
by Borrower on or about April 1, 2000, is subordinated to the Indebtedness of
Borrower to Bank hereunder.
6. AFFIRMATIVE COVENANTS.
Borrower will do all of the following for so long as Bank has an
obligation to lend, or there are outstanding Obligations:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain, and will cause each of its Subsidiaries to
maintain, its legal existence and good standing in its respective jurisdiction
of formation and maintain qualification in each jurisdiction in which the
failure to so qualify could reasonably be expected to result in a Material
Adverse Change. Borrower will comply, and will cause each of its Subsidiaries to
comply, with all laws, ordinances and regulations to which it is subject,
noncompliance with which could 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, company-prepared unaudited
balance sheets and income statements covering the operations of Borrower and its
Subsidiaries during the period, certified by a Responsible Officer and in a form
substantially the same as that which is accepted by the SEC; (ii) as soon as
available but no later than 180 days after the last day of Borrower's fiscal
year, audited financial statements for Borrower and its Subsidiaries prepared
under GAAP, consistently applied, together with an with an opinion which is
unqualified on the financial statements from an independent certified public
accounting firm acceptable to Bank; (iii) within five days of filing,
electronically delivered copies of all statements, reports and notices made
available to Borrower's securities holders or to any holders of Subordinated
Debt and all Forms 10-K, 10-Q and 8-K filed by Borrower with the Securities and
Exchange Commission; (iv) a prompt report of any material legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $500,000 or more; (v) prompt notice of
any material change in the composition of the Intellectual Property, including
any subsequent ownership right of Borrower or any Subsidiary in or to any
Copyright, Patent or Trademark not shown in any intellectual property security
agreement between Borrower and Bank or knowledge of an event that could
reasonably be expected to cause a Material Adverse Change to the value of the
Intellectual Property; and (vi)
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budgets, sales projections, operating plans and other financial information that
Bank might reasonably request.
(b) Borrower will deliver to Bank, concurrently with the delivery of the
monthly financial statements and the annual financial statements, a Compliance
Certificate, in the form of Exhibit C, signed by a Responsible Officer.
(c) Within 30 days after the last day of each month, Borrower will deliver
to Bank a listing of aged accounts receivable and accounts payable, indicating
invoice dates, certified to be true, correct and complete by a responsible
officer.
(d) Borrower will allow Bank to audit the Collateral at Borrower's
expense. Such audits will be conducted no more often than semi-annually unless
an Event of Default has occurred and is continuing (in which case the foregoing
limitation on frequency will not apply).
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 on the
Effective Date. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims that involve more than $500,000.
6.4 TAXES.
Borrower will make, and will cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP) and will deliver to Bank, on demand
but after reasonable notice to Borrower, appropriate certificates attesting to
the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and
in amounts as Bank may reasonably request and as is ordinary and customary for
Borrower's size and industry. Insurance policies will be in forms, with
companies, and in amounts that are reasonably satisfactory to Bank. All property
policies will have a lender's loss payable endorsement showing Bank as an
additional loss payee, all liability policies will show the Bank as an
additional insured, and all policies will 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. Notwithstanding the foregoing, so long as
no Event of Default has occurred and is continuing, Borrower shall have the
option of applying the proceeds of any casualty policy to the replacement or
repair of destroyed or damaged property; provided that, at the occurrence and
during the continuance of an Event of Default, all proceeds payable under any
such casualty policy shall, at the option of Bank, be payable to Bank on account
of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower shall, within 60 days after the Effective Date, establish its
primary operating accounts with the Bank. In addition, Borrower shall at all
times maintain the lesser of $5,000,000 or at least 25% of its total cash and
cash equivalents in accounts with Bank or an Affiliate of Bank. Promptly after
the Effective Date, Borrower shall provide Bank with signed control agreements,
in form and substance substantially the same as those already provided by Bank
to Borrower, from all holders of investment properties or deposit accounts in
which Borrower has an interest; provided, however, that Borrower shall
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provide Bank with such a control agreement covering its accounts with Munder
Capital prior to the initial Credit Extension.
6.7 FINANCIAL COVENANTS.
6.7.1 PERFORMANCE TO PLAN.
As at the end of each fiscal quarter of Borrower's fiscal year, Borrower
shall have maintained a minimum EBITDA equal to or greater than:
Period Minimum EBITDA
------ --------------
Q3, 2002 ($8,500,000)
Q4, 2002 ($4,000,000)
Q1, 2003 ($6,250,000)
Q2, 2003 $1,000,000
6.7.2 MINIMUM UNRESTRICTED CASH.
As at the end of each month, Borrower shall have maintained minimum
Unrestricted Cash (as reflected on Borrower's monthly balance sheet) as follows:
(i) if the outstanding Obligations are less than $10,000,000 then Unrestricted
Cash of at least $20,000,000 and (ii) if Outstanding Obligations equal or exceed
$10,000,000 then Unrestricted Cash of at least $30,000,000. Notwithstanding the
foregoing, Borrower shall at all times maintain minimum Domestic Unrestricted
Cash of at least two times (2x) the aggregate amount of Advances then
outstanding.
6.8 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Borrower will register with the United States Copyright Office all of
Borrower's Intellectual Property consisting of copyrights and copyrightable
materials, and Borrower shall register additional Intellectual Property
consisting of copyrights and copyrightable materials as such are developed or
acquired, including material revisions or additions to any product, before the
sale or licensing of the product to any third party. Borrower will promptly
notify Bank of the filing of applications and the registration of all
Intellectual Property rights of Borrower, and will execute and deliver such
instruments and documents as Bank may request to evidence or perfect Bank's
security interest therein. Borrower will: (i) protect, defend and maintain the
validity and enforceability of its Intellectual Property and promptly advise
Bank in writing of material infringements; and (ii) not allow any of its
Intellectual Property to be abandoned, forfeited or dedicated to the public
without Bank's prior written consent.
6.9 SUBORDINATION.
Borrower shall take all actions necessary to ensure that all Indebtedness
of Borrower other than the Obligations is and at all times shall remain
Subordinated Debt or structurally subordinated to the Obligations.
6.10 FURTHER ASSURANCES.
Borrower will execute all further instruments and take all further actions
as Bank reasonably requests to perfect or continue Bank's security interest in
the Collateral and to effect the purposes of this Agreement, including without
limitation providing Bank with control agreements, in form and substance
acceptable to Bank, for any and all deposit accounts and securities accounts
maintained by Borrower.
7. NEGATIVE COVENANTS.
For so long as Bank has an obligation to lend or there are any outstanding
Obligations, Borrower
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will not do any of the following without Bank's prior written consent, which
will not be unreasonably withheld:
7.1 DISPOSITIONS.
Borrower will not 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 of: (i) Inventory in
the ordinary course of business; (ii) non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) worn-out or obsolete equipment; (iv) other
Transfers which do not exceed $500,000 in aggregate fair market value in any one
fiscal year of Borrower; or (v) assets that are unrelated to the business or
operations of Borrower (such as Intellectual Property related to discontinued
product lines or divested businesses).
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Borrower will not engage in, or permit any of its Subsidiaries to engage
in, any business other than the businesses currently engaged in by Borrower and
its Subsidiaries, or businesses reasonably related thereto. There shall not be a
material change in Borrower's ownership (other than a sale of Borrower's equity
securities in a public offering or to venture capital investors of which Bank
has been given written notice). Borrower will not, without at least 30 days
prior written notice, relocate its chief executive office or add any new offices
or business locations in which Borrower maintains or stores over $100,000 in
Borrower's assets or property.
7.3 MERGERS OR ACQUISITIONS.
Borrower will not merge or consolidate, or permit any of its Subsidiaries
to merge or consolidate, with any other Person unless Borrower ( or such
Subsidiary, as the case may be) is the surviving entity, 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 such transactions do not exceed
$5,000,000.00 in the aggregate and no Event of Default has occurred and is
continuing or would exist after giving effect to the transaction. A Subsidiary
may liquidate, unwind, merge or consolidate into another Subsidiary or into
Borrower, so long as Borrower remains the obligor of all Obligations.
7.4 INDEBTEDNESS.
Borrower will not create, incur, assume or be liable for any Indebtedness,
or permit any Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCES.
Borrower will not create, incur or allow to exist any Lien on any of its
properties, 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 herein granted to Bank, subject only to Permitted
Liens.
7.6 DISTRIBUTIONS; INVESTMENTS.
Borrower will not directly or indirectly acquire or own any Person, or
make any Investment in any Person (other than Permitted Investments) or permit
any of its Subsidiaries to do so, or pay any dividends or make any distribution
or payment related to, or redeem, retire or purchase any of, its capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Borrower will not directly or indirectly enter into or permit any material
transaction with any
9
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, provided that Borrower may
appropriately compensate its executive officers in such manner as is determined
by Borrower's board of directors.
7.8 SUBORDINATED DEBT.
Borrower will not make or permit any payment on any Subordinated Debt
except under the express 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.
Borrower will not, and will not permit any of its Subsidiaries to: (i)
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
material activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; (ii) fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction (as defined in ERISA) to occur; or (iii) fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation
applicable to Borrower, if the violation could reasonably be expected to cause a
Material Adverse Change.
8. EVENTS OF DEFAULT.
8.1 PAYMENT DEFAULT.
Borrower fails to pay any of the Obligations within three days after their
due date. During the three day period, the failure to cure the default is not
itself an Event of Default (but Bank shall have no obligation to make a Credit
Extension during the three day period).
8.2 COVENANT DEFAULT.
(a) Borrower fails to perform any obligation under Article 6, or violates
any of the covenants in Article 7 of this Agreement, or
(b) Borrower fails or neglects to perform, keep or observe any other
material term, provision, condition, covenant or agreement in this Agreement, in
any other Loan Documents or in any other present or future agreement between
Borrower and Bank and, as to any default under such other term, provision,
condition, agreement or covenant 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-day period, and
such default is likely to be cured within a reasonable time thereafter, then
Borrower shall have an additional reasonable time period (which shall not in any
case exceed ten additional days) to cure such default. During the ten-day period
and (if applicable) the additional ten-day period, the failure to cure the
default is not itself an Event of Default (but Bank shall have no obligation to
make a Credit Extension during such periods).
8.3 MATERIAL ADVERSE CHANGE.
There occurs (i) a material adverse change in the business, operations or
condition (financial or otherwise) of the Borrower, (ii) a material impairment
of the prospect of repayment of any portion of the Obligations, or (iii) a
material impairment to the value or priority of Bank's security interest in the
Collateral (or any material portion thereof).
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8.4 ATTACHMENT.
Any material portion of Borrower's assets is attached, seized or levied
on, or comes into possession of a trustee or receiver, and the attachment,
seizure or levy is not removed, or the possession by a trustee or receiver is
not terminated, in ten days; or Borrower is enjoined, restrained or prevented by
court order from conducting a material part of its respective businesses; or a
judgment or other claim becomes a Lien on a material portion of Borrower's
assets; or a notice of lien, levy or assessment is filed against any of
Borrower's assets by any government agency and not paid within ten days after
Borrower receives notice thereof. None of the foregoing is an Event of Default
if stayed or if a bond is posted pending contest by Borrower (but Bank shall
have no obligation to make a Credit Extension during such stay period or pending
contest).
8.5 INSOLVENCY.
Borrower becomes insolvent or begins an Insolvency Proceeding, or an
Insolvency Proceeding is begun against Borrower and is not dismissed or stayed
within 30 days (but Bank shall have no obligation to make a Credit Extension
before any Insolvency Proceeding is dismissed).
8.6 OTHER AGREEMENTS.
There is a material default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $250,000 or that could reasonably be expected to cause a Material
Adverse Change.
8.7 JUDGMENTS.
A money judgment(s) in the aggregate of at least $500,000 is rendered
against Borrower and is unsatisfied and unstayed for ten days (but Bank shall
have no obligation to make a Credit Extension before the judgment is stayed or
satisfied) and is not otherwise covered by indemnification of, or insurance
coverages with respect to, the Borrower.
8.8 MISREPRESENTATIONS.
Borrower or any Person acting for Borrower, makes any material
misrepresentation or material misstatement, in light of the circumstances in
which it was made, now or later in any warranty or representation in this
Agreement or in any writing delivered to Bank or in order 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 is continuing and any period for cure
as set forth in Section 8 hereof has expired, 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;
11
(d) Make any payments and do any acts that Bank considers necessary or
reasonable to protect its security interest in the Collateral and in furtherance
thereof: (i) Borrower will assemble the Collateral if Bank requires and make it
available as Bank designates; (ii) 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; and (iii) 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
that Bank holds, and (ii) amounts 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 in furtherance thereof:
(i) Bank is 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
(ii) Borrower's rights under all licenses and all franchise agreements inure to
Bank's benefit in connection with the foregoing; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Borrower irrevocably appoints and constitutes Bank as its lawful
attorney-in-fact, with full power and in the name of Borrower, to do all of the
following upon the occurrence and continuation of an Event of Default: (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. Notwithstanding the foregoing, 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, are coupled
with an interest and irrevocable until all Obligations have been fully repaid
and performed and Bank's obligation to provide Credit Extensions terminates.
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 that 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 constitute Bank's waiver of any Event of
Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
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If Bank complies with the Code, it shall not be liable for: (i) the
safekeeping of the Collateral; (ii) any loss or damage to the Collateral; (iii)
any diminution in the value of the Collateral; or (iv) 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 other Loan Documents
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law and 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 guaranties 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 thereof.
11. CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER.
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa Xxxxx County, California.
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 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 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 participations 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: (i) all obligations, demands, claims, and
liabilities asserted by any other party in connection with
13
the transactions contemplated by the Loan Documents; and (ii) all losses and
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
other 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 of which, 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 by Bank: (i) to Bank's subsidiaries or
affiliates in connection with their present or prospective business relations
with Borrower; (ii) to prospective transferees or purchasers of any interest in
the Obligations or the Loan Documents; (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 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 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
14
expenses incurred, in addition to any other relief to which it may be entitled.
13. DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights
and other obligations owed to Borrower in connection with its sale or lease of
goods (including the licensing of 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" are amounts advanced under the Loan Documents to
or on behalf of Borrower, including but not limited to the aggregate of (i) all
amounts utilized under the Cash Management Services Sublimit; (ii) the
then-outstanding principal balance of all Revolving Advances; (iii) the face
amount of all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit); and (iv) all amounts utilized under the Foreign Exchange
Sublimit.
"AFFILIATE" of a Person is a Person that owns or directly or indirectly
controls 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 the costs and expenses (including, but not limited to,
all audit fees and expenses and reasonable attorneys' fees and expenses) for
preparing, negotiating, administering, defending and enforcing the Loan
Documents (including appeals and Insolvency Proceedings).
"BORROWER'S BOOKS" are all of Borrower's books and records, including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or other day on
which the Bank is closed.
"CASH MANAGEMENT SERVICES" are defined in Section 2.1.2.
"CASH MANAGEMENT SERVICES SUBLIMIT" is defined in Section 2.1.2.
"CODE" is the Uniform Commercial Code, as applicable.
"COLLATERAL" is the property described on Exhibit A.
"COMMITTED REVOLVING LINE" is $15,000,000.
"COMMITMENT TERMINATION DATE" is the date that is one day prior to the
one-year anniversary of the Effective Date.
"COMPLIANCE CERTIFICATE" is attached as Exhibit C.
"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
15
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.
"COPYRIGHTS" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CREDIT EXTENSION" is each Revolving Advance, Cash Management Service,
Letter of Credit, FX or Forward Contract or any other extension of credit made
by Bank to Borrower or for Borrower's benefit.
"CURRENT LIABILITIES" are equal to (i) the aggregate amount of Borrower's
Total Liabilities which mature within one (1) year, including all outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) and all
amounts outstanding under corporate credit cards, plus (ii) all outstanding
principal under the Committed Revolving Line.
"DOLLARS" and "$" is United States dollars.
"DOMESTIC UNRESTRICTED CASH" is Unrestricted Cash held in accounts at
financial institutions that are located within the United States of America.
"EBITDA" is earnings from ongoing operations before interest expenses,
taxes, depreciation and amortization as determined in accordance with GAAP.
"EFFECTIVE DATE" is September 30, 2002.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"EVENT OF DEFAULT" is the occurrence of any event described in Article 8
but does not include any cure period provided therein.
"FOREIGN EXCHANGE SUBLIMIT" is defined in Section 2.1.3.
"FX FORWARD CONTRACT" is defined in Section 2.1.3.
"GAAP" is generally accepted accounting principles, consistently applied
over the period(s) in question.
"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 PROCEEDINGS" 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.
"INTELLECTUAL PROPERTY" is:
(a)Copyrights, Trademarks, Patents and Mask Works, including all
amendments, renewals,
16
extensions and licenses or other rights to use same, and all license fees and
royalties from the use of same;
(b)Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c)All design rights which may be available to Borrower or Guarantor now
or later created, acquired or held;
(d)Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to xxx and
collect damages for use or infringement of the intellectual property rights
above; and
(e) All proceeds and products of the foregoing, including all insurance,
indemnity and warranty payments.
"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 (including stock, partnership
interest or other securities) of any Person, or any loan, advance or capital
contribution to any Person.
"LETTERS OF CREDIT" is described in Section 2.1.3.
"LETTER OF CREDIT FEE" is: (i) for the issuance of each Letter of Credit,
an amount equal to one and one-half percent (1.50%) of the face amount of such
Letter of Credit; and (ii) for the renewal of each Letter of Credit, an amount
equal to one and one-half percent (1.50%) of the face amount of such Letter of
Credit.
"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 and
any other present or future agreement between Borrower to or for the benefit of
Bank in connection with this Agreement, all as amended, extended or restated.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" is described in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts that Borrower owes to 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.
"OVERADVANCE" is described in Section 2.2.
"PATENTS" are patents, patent applications and like protections, including
improvements, divisions,
17
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"PERMITTED INDEBTEDNESS" is:
(a)Borrower's indebtedness to Bank under this Agreement or any other Loan
Document;
(b)Indebtedness existing on the Effective Date that is acceptable to Bank
and shown on the Schedules;
(c)Subordinated Debt;
(d)Indebtedness to trade creditors incurred in the ordinary course of
business;
(e)Indebtedness secured by Permitted Liens;
(f) Indebtedness of Borrower to any Subsidiary and Contingent Obligations
of any Subsidiary with respect to obligations of Borrower (provided that the
primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of any other Subsidiary (provided that the primary
obligations are not prohibited hereby);
(g) Other Indebtedness, not otherwise permitted by Section 7.4, not
exceeding $250,000 in the aggregate outstanding at any time; and
(h) Extensions, refinancings, modifications, amendments and restatements
of any items of Permitted Indebtedness (a) through (f) 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 existing on the Effective Date that are acceptable to Bank
and shown on the Schedules;
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within one 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;
(c) Investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
Borrower;
(d) Investments accepted in connection with Transfers permitted by Section
7.1;
(e) Investments of Subsidiaries in or to other Subsidiaries or Borrower
and Investments by Borrower in Subsidiaries not to exceed $500,000 in the
aggregate in any fiscal year;
(f) Investments consisting of (i) travel advances and employee relocation
loans and other employee loans and advances in the ordinary course of business,
and (ii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower or its Subsidiaries pursuant to employee stock
purchase plans or agreements approved by Borrower's Board of Directors;
18
(g) Investments (including debt obligations) received in connection with
the bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;
(h) Investments consisting of notes receivable of, or prepaid royalties
and other credit extensions, to customers and suppliers who are not Affiliates,
in the ordinary course of business; provided that this paragraph (h) shall not
apply to Investments of Borrower in any Subsidiary;
(i) Joint ventures or strategic alliances in the ordinary course of
Borrower's business consisting of the non-exclusive licensing of technology, the
development of technology or the providing of technical support, provided that
any cash investments by Borrower do not exceed $250,000 in the aggregate in any
fiscal year;
(j)checking, savings, money market and investment accounts with Bank or an
Affiliate of Bank;
(k)distributions payable solely in Borrower's capital stock;
(l) conversions of any of Borrower's convertible securities into other
securities pursuant to the terms of such convertible securities or otherwise in
exchange therefore; and
(m)repurchases of stock from any former employees, consultants or
directors pursuant to the terms of the applicable repurchase agreements,
provided that such repurchases shall not in the aggregate exceed $250,000 and no
Event of Default has occurred and is continuing or would exist after giving
effect to such repurchase.
"PERMITTED LIENS" are:
(a)Liens existing on the Effective Date that are acceptable to Bank and
shown on the Schedules 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 existing on equipment when acquired, if the Lien
is confined to the property and improvements and the proceeds of the equipment;
(d)Licenses or sublicenses granted in the ordinary course of Borrower's
business and any interest or title of a licensor or under any license or
sublicense, if the licenses and sublicenses permit granting Bank a security
interest, including any letter of credit issued for the account of Borrower to
ensure Borrower's performance under such license or sublicense;
(e) Leases or subleases granted in the ordinary course of Borrower's
business, including in connection with Borrower's leased premises or leased
property;
(f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness so secured may not
increase;
(g) Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Section 8.4 or 8.7;
19
(h) Liens in favor of other financial institutions arising in connection
with Borrower's deposit accounts held at such institutions, provided that Bank
has a perfected security interest in the amounts held in such deposit accounts;
(i) Other Liens not described above arising in the ordinary course of
business and not having or not reasonably likely to cause a Material Adverse
Change in Borrower and its Subsidiaries taken as a whole; and
(j) Escrow agreements with respect to Intellectual Property granted by
Borrower in connection with licenses of Borrower's products, all in the ordinary
course of Borrower's business.
"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 the lowest rate at which Bank makes loans or otherwise extends credit. The
Prime Rate may change from time to time over the term of this Agreement.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
Controller, the President and the Chief Financial Officer of Borrower.
"REVOLVING ADVANCE" or "REVOLVING ADVANCES" is a principal advance (or
advances) of funds under the Committed Revolving Line.
"REVOLVING MATURITY DATE" is September 29, 2003.
"SCHEDULES" are the attached schedules of exceptions.
"SEC" is the U.S. Securities and Exchange Commission.
"SUBORDINATED DEBT" is debt incurred by Borrower that is subordinated to
Borrower's Indebtedness owed to Bank and that is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.
"SUBSIDIARY" is, for Borrower, all entities noted on the attached Schedule
entitled "Subsidiaries".
"TOTAL LIABILITIES" are, on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness and the current portion of Subordinated Debt allowed to be
paid, but excluding all other Subordinated Debt.
"TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Borrower connected with the trademarks.
"UNUSED COMMITMENT FEE" is the fee payable by Borrower to Bank under
Section 2.4.4 hereof.
20
"UNRESTRICTED CASH" is all cash that (i) is not subject to any Lien or
(ii) does not otherwise fall within the definition of "restricted cash" as
determined under GAAP.
IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized representative to execute and deliver this Agreement on the date
first set forth above.
BANK: BORROWER:
SILICON VALLEY BANK, CRITICAL PATH, INC.,
a California-chartered bank a California corporation
By: /s/ By: /s/ Xxxxxxx XxXxxxx
---------------------------------------- -------------------
Name: Name: Xxxxxxx XxXxxxx
--------------------------------------
Title: Title: Chief Financial Officer and Executive Vice President
------------------------------------- ----------------------------------------------------
21
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 also
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;
All of Borrower's Intellectual Property; and
All of 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.
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
FAX TO: DATE:
-------------------------- -----------------------
[ ] Loan Payment:
CRITICAL PATH, INC.
From Account # To Account #
--------------------------- ---------------------
(Deposit Account #) (Loan Account #)
Principal $ and/or Interest $
---------------------- -----------------------------
All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:
AUTHORIZED SIGNATURE: Phone Number:
------------------------- -------------------
[ ] 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 #
--------------------------- ---------------------
(Loan Account #) (Deposit Account #)
Amount of Revolving Advance $
-------------------
All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:
AUTHORIZED SIGNATURE: Phone Number:
------------------------- -------------------
OUTGOING WIRE REQUEST
COMPLETE ONLY IF ALL OR A PORTION OF FUNDS FROM THE LOAN ADVANCE ABOVE ARE TO BE
WIRED. Deadline for same day processing is 12:00 p.m., P.T.
Beneficiary Name: Amount of Wire: $
------------------------ ------------------
Beneficiary Bank: Account Number:
------------------------ -------------------
City and Sate:
----------------------------------
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:
------------------------------------------------------------
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:
-----------------------
Print Name/Title:
---------------------------
Telephone #
---------------------------------
2nd Signature (If Required):
-----------------------
Print Name/Title:
---------------------------
Telephone #
---------------------------------
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: CRITICAL PATH, INC.
DATED: ______________
The undersigned authorized officer of Critical Path, Inc. ("Borrower")
certifies that under the terms and conditions of the Loan and Security Agreement
dated as of September 30, 2002 between Borrower and Bank (the "Agreement"), (i)
Borrower is in complete compliance for the period ending on the date first set
forth above 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, provided that any representation or warranty
that specified an earlier date continues to be true as of that specified earlier
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 COVENANTS REQUIRED COMPLIES
------------------- -------- --------
Interim financial statements + CC Monthly within 30 days Yes No
Annual audited financial statements + CC Within 180 days of FYE Yes No
A/R Aging by Invoice Date Monthly within 30 days Yes No
FINANCIAL COVENANTS
A. Minimum Unrestricted Cash (maintain on a monthly basis)
ACTUAL COMPLIES
------ --------
If outstanding Obligations are less than $10,000,000.00, Yes No
then Unrestricted Cash of at least $20,000,000.00.
If outstanding Obligations equal or exceed $10,000,000.00, Yes No
then Unrestricted Cash of at least $30,000,000.00.
At all times, Domestic Unrestricted Cash of at least two times
(2x) then outstanding Advances
B. Minimum EBITDA (measured on a quarterly basis)
PERIOD REQUIRED ACTUAL COMPLIES
------ -------- ------ --------
Q3, 2002 ($8,500,000) Yes No
Q4, 2002 ($4,000,000) Yes No
Q1, 2003 ($6,250,000) Yes No
Q2, 2003 $1,000,000 Yes No
Have there been updates to Borrower's Intellectual Property? Yes No
Borrower has deposit and/or investment accounts only at the following
institutions:
----------------------
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
Critical Path, Inc.,
a California corporation
--------------------------------------
Signature
--------------------------------------
Title
--------------------------------------
Date
BANK USE ONLY
Received by:
------------------------------
AUTHORIZED SIGNER
Date:
-------------------------------------
Verified:
---------------------------------
AUTHORIZED SIGNER
Date:
-------------------------------------
Compliance Status: Yes No
