Exhibit 10.17
ACCOUNTS RECEIVABLE FINANCING AGREEMENT
This ACCOUNTS RECEIVABLE FINANCING AGREEMENT is entered into this 30th day
of May, 2003 by and between SILICON VALLEY BANK, a California-chartered bank,
with its principal place of business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx,
Xxxxxxxxxx 00000 and with a loan production office located at One Newton
Executive Park, Suite 200, 0000 Xxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000,
doing business under the name "Silicon Valley East" (FAX 000-000-0000) ("Bank")
and INTERNET COMMERCE CORPORATION, a Delaware corporation with its principal
place of business at 000 Xxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 (FAX
000-000-0000) ("Borrower") and provides the terms on which Bank shall lend to
Borrower and Borrower shall repay Bank. The parties agree as follows:
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.
"Account Balance" is the aggregate outstanding Advances made hereunder.
"Account Debtor" is as defined in the Code and shall include, without
limitation, any person liable on any Financed Receivable, such as, a guarantor
of the Financed Receivable and any issuer of a letter of credit or banker's
acceptance.
"Adjusted Quick Ratio" is the ratio of Quick Assets to Current Liabilities
minus Deferred Revenue.
"Adjustments" are all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account
Debtor for any Financed Receivable.
"Advance" is defined in Section 2.2.
"Advance Rate" eighty percent (80.0%) net of any offsets related to each
specific Account Debtor, including, without limitation, Deferred Revenue, or
such other percentage as Bank establishes under Section 2.2.
"Applicable Rate" is a per annum rate equal to the Prime Rate plus 0.35%.
"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.
"Code" is the Uniform Commercial Code as adopted by The Commonwealth of
Massachusetts (presently, Mass. Gen. Laws, Ch. 106), as may be amended and in
effect from time to time.
"Collateral" is attached as Exhibit A, as each term listed thereon is
defined in the Code.
"Collateral Handling Fee" is defined in Section 3.4.
"Collections" are all funds received by Bank from or on behalf of an
Account Debtor for Financed Receivables.
"Compliance Certificate" is attached as Exhibit "B".
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Current Liabilities" is all obligations and liabilities of Borrower to
Bank, plus, without duplication, the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"Deferred Revenue" is all amounts received in advance of performance under
contracts and not yet recognized as revenue.
"Event of Default" is defined in Section 9.
"Facility Amount" is Two Million Five Hundred Thousand Dollars
($2,500,000.00).
"Facility Fee" is defined in Section 3.3.
"Facility Period" is the period beginning on this date and continuing
until one year from the date of this Agreement, unless the period is terminated
sooner pursuant to Section 4.3.
"Finance Charges" is defined in Section 3.2.
"Financed Receivables" are all those accounts, receivables, chattel paper,
instruments, contract rights, documents, general intangibles, letters of credit,
drafts, bankers acceptances, and rights to payment, and all proceeds, including
their proceeds (collectively "receivables"), which Bank finances and make an
Advance. A Financed Receivable stops being a Financed Receivable (but remains
Collateral) when the Advance made for the Financed Receivable has been finally
paid.
"Financed Receivable Balance" is the total outstanding amount, at any
time, of all Financed Receivables.
"GAAP" is generally accepted accounting principles as adopted by the
Financial Accounting Standards Board.
"Good Faith Deposit" is described in Section 3.8.
"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.
"Ineligible Receivable" is any accounts receivable:
(a) that is unpaid (90) calendar days after the invoice date; or
(b) that is owed by an Account Debtor that has filed, or has had
filed against it, any bankruptcy case, assignment for the
benefit of creditors, receivership, or Insolvency Proceeding
or who has become insolvent (as defined in the United States
Bankruptcy Code) or who is generally not paying its debts as
they become due; or
(c) as to which there has been any breach of warranty or
representation in Section 6 or any breach of any covenant in
this Agreement; or
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(d) to the extent to which the Account Debtor asserts any
discount, allowance, return, dispute, counterclaim, offset,
defense, right of recoupment, right of return, warranty claim,
or short payment.
"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 similar relief.
"Invoice Transmittal" shows accounts receivable which Bank may finance
and, for each receivable, includes the Account Debtor's, name, address, invoice
amount, invoice date and invoice number and is signed by Borrower's authorized
representative.
"Lockbox" is described in Section 6.3(J).
"Obligations" are all advances, liabilities, obligations, covenants and
duties owing, arising, due or payable by Borrower to Bank now or later under
this Agreement, such as all Advances, Finance Charges, Facility Fee, Collateral
Handling Fee, interest, fees, expenses, professional fees and attorneys' fees,
or other amounts now or hereafter owing by Borrower to Bank.
"Permitted Investments" are:
(a) investments in short term United States government treasury
bills, certificates of deposit, repurchase agreements,
commercial paper and mutual funds or money market funds that
invest substantially all of their assets in instruments
described above in this definition;
(b) travel and other advances to directors and employees of
Borrower made in the ordinary course of business; and
(c) investments in marketable securities listed on Schedule B
hereto.
"Permitted Liens" are liens, claims, and encumbrances that:
(a) arise or exist pursuant to this Agreement;
(b) exist on the date hereof and are listed on Schedule A hereto
and any renewals or extensions thereof, provided such liens
secure the purchase money for specific equipment and such
liens are limited solely to such specific equipment and the
proceeds thereof;
(c) are for taxes not yet due or which are being contested in good
faith and by appropriate proceedings diligently conducted;
(d) are carriers', warehousemen's, mechanics', materialmen's,
repairmen's, or other simlilar liens, claims, or encumbrances
arising in the ordinary course of business which are not
overdue for a period of more than ninety (90) days or whicha
re being contested in good faith by appropriate proceedings
diligently conducted;
(e) are pledges or deposits in the ordinary course of business in
connection with workers' compensation, unemployment insurance,
and other Social Security legislation;
(f) are deposits to secure the performance of bids, contracts and
leases, statutory obligations, surety bonds, performance
bonds, and other obligations similarly incurred in the
ordinary course of business;
(g) secure judgments for the payment of money not constituting an
Event of Default or secure appeal or other surety bonds
related to such judgments; and
(h) secure Indebtedness permitted under Section 6.4(B).
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"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Prime Rate" is the greater of (i) four and one-quarter percent (4.25%) or
(ii) 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 accounts receivable and investments with maturities
of fewer than 12 months determined according to GAAP.
"Reconciliation Day" is the last calendar day of each month.
"Reconciliation Period" is each calendar month.
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank,
pursuant to a subordination agreement entered into between the Bank, the
Borrower and the subordinated creditor), on terms reasonably acceptable to Bank.
"Subsidiary" is for any Person, joint venture, or any other business
entity of which more than 50% of the voting stock or other equity interests is
owned or controlled, directly or indirectly, by the Person or one or more
Affiliates of the Person.
"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 the current portion of Subordinated Debt allowed to be
paid, but excluding all other Subordinated Debt.
2. Financing of Accounts Receivable.
1. Request for Advances. During the Facility Period, Borrower may
offer accounts receivable to Bank and request that the Bank finance such
accounts receivables, if there is not an Event of Default. Borrower will deliver
an Invoice Transmittal for each accounts receivable it offers. Bank may rely on
information on or with the Invoice Transmittal.
2. Acceptance of Accounts Receivable. Bank is not obligated to
finance any accounts receivable. Bank may approve any Account Debtor's credit
before agreeing to finance any accounts receivable. When Bank agrees to finance
a receivable, it will extend credit to Borrower in an amount up to the result of
the Advance Rate multiplied by the face amount of the receivable (the
"Advance"). Bank may, in reasonable discretion, change the percentage of the
Advance Rate for a particular receivable on a case by case basis. When Bank
makes an Advance, the receivable becomes a "Financed Receivable." All
representations and warranties in Section 6 must be true as of the date of the
Invoice Transmittal and of the Advance and no Event of Default shall then exist
or would occur as a result of the Advance. The aggregate face amount of all
Financed Receivables outstanding at any time may not exceed the Facility Amount.
3. Collections, Finance Charges, Remittances and Fees. The Obligations
shall be subject to the following fees and Finance Charges. Fees and Finance
Charges may, in Bank's discretion, be charged as an Advance, and shall
thereafter accrue fees and Finance Charges as described below. Bank may, in its
discretion, charge customary fees and Finance Charges to Borrower's deposit
account maintained with Bank.
1. Collections. Collections will be credited to the Financed
Receivables Balance, but if there is an Event of Default, Bank may apply
Collections to the Obligations in any order it chooses. If Bank receives a
payment for both a Financed Receivable and a non Financed Receivable, the funds
will first be applied to the Financed Receivable and, if there is not an Event
of Default, the excess will be remitted to the Borrower, subject to Section 3.7.
2. Finance Charges. In computing Finance Charges on the Obligations,
all Collections received by Bank shall be deemed applied by Bank on account of
the Obligations one (1) Business Day after receipt of the Collections. On each
Reconciliation Day, Borrower will pay a finance charge (the "Finance Charge"),
which
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is equal the Applicable Rate divided by 360 multiplied by the number of days in
the Reconciliation Period multiplied by the outstanding average daily Financed
Receivable Balance for that Reconciliation Period.
3. Facility Fee. A fully earned, non-refundable facility fee of Ten
Thousand Dollars ($10,000.00) is due upon execution of this Agreement.
4. Collateral Handling Fee. On each Reconciliation Day, Borrower
will pay to Bank a collateral handling fee, equal to 0.20% per month of the
average daily Financed Receivable Balance outstanding during the applicable
Reconciliation Period. After an Event of Default, the Collateral Handling Fee
will increase an additional 0.30% effective immediately before the Event of
Default.
5. Accounting. After each Reconciliation Period, Bank will provide
an accounting of the transactions for that Reconciliation Period, including the
amount of all Financed Receivables, all Advances, Collections, Adjustments,
Finance Charges, Collateral Handling Fee and the Facility Fee. If Borrower does
not object to the accounting in writing within forty-five (45) days it is
considered correct. All Finance Charges and other interest and fees are
calculated on the basis of a 360 day year and actual days elapsed.
6. Deductions. Bank may deduct fees, Finance Charges and other
amounts due pursuant to this Agreement from any Advances made or Collections
received by Bank.
7. Account Collection Services. All Borrower's receivables are to be
paid to the same address/or party and Borrower and Bank must agree on such
address. If Bank collects all receivables and there is not an Event of Default
or an event that with notice or lapse of time will be an Event of Default, as
soon as possible, but no later than within three (3) days of receipt of those
collections, Bank will give Borrower the receivables collections it receives for
receivables other than Financed Receivables and/or amount in excess of the
amount for which Bank has made an Advance to Borrower, less any amount due to
Bank, such as the Finance Charge, the Facility Fee, other fees and expenses, or
otherwise. This Section does not impose any affirmative duty on Bank to do any
act other than to turn over amounts. All receivables and collections are
Collateral and if an Event of Default occurs, Bank need not remit collections of
Collateral and may apply them to the Obligations.
8. Good Faith Deposit. Borrower has paid to Bank a Good Faith
Deposit of Five Thousand Dollars ($5,000.00) to initiate Bank's due diligence
review process. Any portion of the deposit not utilized to pay expenses will be
applied to the Facility Fee.
4. Repayment of Obligations.
1. Repayment on Maturity. Borrower will repay each Advance on the
earliest of: (a) payment of the Financed Receivable in respect which the Advance
was made, (b) the Financed Receivable becomes an Ineligible Receivable, (c) when
any Adjustment is made to the Financed Receivable (but only to the extent of the
Adjustment if the Financed Receivable is not otherwise an Ineligible
Receivable), or (d) the last day of the Facility Period (including any early
termination). Each payment will also include all accrued Finance Charges on the
Advance and all other amounts due hereunder.
2. Repayment on Event of Default. When there is an Event of Default,
Borrower will, if Bank demands (or, in an Event of Default under Section 9(B),
immediately without notice or demand from Bank) repay all of the Advances. The
demand may, at Bank's option, include the Advance for each Financed Receivable
then outstanding and all accrued Finance Charges, Collateral Handling Fee,
attorneys and professional fees, court costs and expenses, and any other
Obligations.
3. Early Termination of Agreement. This Agreement may be terminated
prior to the last day of the Facility Period as follows: (i) by Borrower,
effective three Business Days after written notice of termination is given to
Bank; or (ii) by Bank at any time after the occurrence of an Event of Default,
without notice, effective immediately.
5. Power of Attorney. Borrower irrevocably appoints Bank and its
successors and assigns it attorney-in-fact and authorizes Bank to:
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i. following the occurrence of an Event of Default and during the
continuance thereof, sell, assign, transfer, pledge, compromise, or
discharge all or any part of the Financed Receivables:
ii. following the occurrence of an Event of Default and during the
continuation thereof, demand, collect, xxx, and give releases to any
Account Debtor for monies due and compromise, prosecute, or defend
any action, claim, case or proceeding about the Financed
Receivables, including filing a claim or voting a claim in any
bankruptcy case in Bank's or Borrower's name, as Bank chooses:
iii. following the occurrence of an Event of Default and during the
continuation thereof, prepare, file and sign Borrower's name on any
notice, claim, assignment, demand, draft, or notice of or
satisfaction of lien or mechanics' lien or similar document;
iv. following the occurrence of an Event of Default and during the
continuation thereof, notify all Account Debtors to pay Bank
directly; provided, however, that prior to the occurrence of an
Event of Default, Bank may notify Accounts Debtors to pay directly
to the Lockbox;
v. regardless of whether there has been an Event of Default,
receive, open, and dispose of mail addressed to Borrower;
vi. regardless of whether there has been an Event of Default,
endorse Borrower's name on check or other instruments (to the extent
necessary to pay amounts owed pursuant to this Agreement); and
vii. regardless of whether there has been an Event of Default,
execute on Borrower's behalf any instruments, documents, financing
statements to perfect Bank's interests in the Financed Receivables
and Collateral and do all acts and things necessary or expedient, as
determined by Bank in its reasonable discretion, to protect or
preserve Bank's rights and remedies under this Agreement.
6. Representations, Warranties and Covenants.
1. Representations and Warranties. Borrower represents and warrants
for each Financed Receivable:
i. Borrower is the owner with legal right to assign it as
collateral security;
ii. The correct amount is on the Invoice Transmittal and is not
disputed;
iii. Payment is not contingent on any obligation or contract and it
has fulfilled all its obligations as of the Invoice Transmittal
date;
iv. It is based on an actual sale and delivery of goods and/or
services rendered, due to Borrower, it is not past due or in
default, has not been previously sold, assigned, transferred, or
pledged and is free of any liens, security interests and
encumbrances;
v. To the best of Borrower's knowledge at the time of financing
the receivable, there are no defenses, offsets, counterclaims or
agreements for which the Account Debtor may claim any deduction or
discount;
vi. Borrower reasonably believes no Account Debtor is insolvent or
subject to any Insolvency Proceedings;
vii. Borrower has not filed or had filed against it Insolvency
Proceedings and does not anticipate any filing;
viii. Bank has the right to endorse and/ or require Borrower to
endorse all payments received on Financed Receivables and all
proceeds of Collateral; and
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ix. No representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material
fact necessary to make the statement contained in the certificates
or statement not misleading.
2. Additional Representations and Warranties. Borrower represents
and warrants as follows:
i. Borrower 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. The execution,
delivery and performance of this Agreement has been duly authorized,
and do not conflict with Borrower's organizational documents or
constitute an Event of Default under any material agreement by which
Borrower is bound, provided that Borrower's organizational documents
require Borrower to pay dividends of $400,000 per year on Borrower's
Series C Preferred Stock. Borrower is not in default under any
agreement to which or by which it is bound, which default would have
a material adverse effect on Borrower's financial condition.
ii. Borrower has good title to the Collateral. All inventory is in
all material respects of good and marketable quality, free from
material defects.
iii. There are no actions or proceedings pending or, to Borrower's
knowledge, threatened by or against Borrower or any Subsidiary of
Borrower on the date hereof.
iv. All consolidated financial statements for Borrower and any
Subsidiary of Borrower 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.
v. Borrower is able to pay its debts (including trade debts) as
they mature.
vi. No representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained in the certificates
or statements not misleading.
vii. Borrower is not an "investment company" or a company
"controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations X, T and U of
the Federal Reserve Board of Governors). Borrower has complied with
the Federal Fair Labor Standards Act. Borrower has not violated any
laws, ordinances or rules, except for such noncompliance or
violations that would not have a material adverse effect on the
financial condition of the Borrower. None of Borrower's properties
or assets has been used by Borrower, 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 has timely filed all required tax returns and
paid, or made adequate provision to pay, all taxes. Borrower 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 for such consents, approvals,
declarations, filings, and notices, the failure of which to obtain
or provide, would not have a material adverse effect on the
financial condition of the Borrower.
3. Affirmative Covenants. Borrower will do all of the
following:
i. Maintain its corporate existence and good standing in its
jurisdiction of incorporation and maintain its qualification in each
jurisdiction necessary to Borrower's business or operations.
ii. Pay all its taxes including gross payroll, withholding and
sales taxes when due and will deliver satisfactory evidence of
payment if requested.
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iii. Provide a written report within sixty (60) days after the
invoice date respecting any Financed Receivable (or as and when
otherwise directed by the Bank), if payment of any Financed
Receivable does not occur by its due date and include the reasons
for the delay.
iv. Borrower shall deliver to Bank: (i) as soon as available, but
no later than forty-five (45) days after the last day of each month
(other than August 2003 and September 2003, which shall be delivered
no later than sixty (60) days after the end of such months), a
company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during the period, in a
form reasonably acceptable to Bank and certified Borrower; (ii) as
soon as available, but no later than one hundred twenty (120) days
after the end of Borrower's fiscal year, audited consolidated
financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements
from an independent certified public accounting firm reasonably
acceptable to Bank; (iii) within five (5) days of filing, copies of
all statements, reports and notices made available to Borrower's
security holders or to any holders of Subordinated Debt and all
reports on Form 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission; and (iv) budgets, sales projections, operating
plans or other financial information Bank reasonably requests.
v. Borrower shall keep its business and the Collateral insured
for risks and in amounts customary for its business. Insurance
policies shall be in a form, with companies, and in amounts that are
reasonably satisfactory to Bank. All property policies shall have a
lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies shall show the Bank as an
additional insured and all policies shall provide that the insurer
must give Bank at least twenty (20) days notice before canceling its
policy. At Bank's request, Borrower shall deliver certified copies
of policies and evidence of all premium payments. Proceeds payable
under any policy shall, at Bank's option, be payable to Bank on
account of the Obligations. 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 up to $100,000.00, in the aggregate, toward the replacement
or repair of destroyed or damaged property; provided that (i) any
such replaced or repaired property (a) shall be of equal or like
value as the replaced or repaired Collateral and (b) shall be deemed
Collateral in which Bank has been granted a first priority security
interest and (ii) after the occurrence and during the continuation
of an Event of Default all proceeds payable under such casualty
policy shall, at the option of the Bank, be payable to Bank on
account of the Obligations. If Borrower fails to obtain insurance as
required under this Section or to pay any amount or furnish any
required proof of payment to third persons and the Bank, Bank may
make all or part of such payment or obtain such insurance policies
required in this Section, and take any action under the policies
Bank deems prudent.
vi. 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.
vii. Provide Bank with a Compliance Certificate along with monthly
and annual financial statements, or as requested by Bank.
viii. Provide Bank with, as soon as available, but no later than
twenty (20) days following each Reconciliation Period, an aged
listing of accounts receivables and accounts payable, along with a
Deferred Revenue report. All of the foregoing shall be in form and
substance reasonably satisfactory to the Bank.
ix. Immediately notify, transfer and deliver to Bank all
collections Borrower receives for Financed Receivables (and, as and
when required hereunder, for all receivables).
x. Borrower shall direct each Account Debtor (and each depository
institution where proceeds of accounts receivable are on deposit) to
make payments with respect to all receivables to a lockbox account
established with the Bank ("Lockbox") or to wire transfer payments
to a cash collateral account that Bank controls, as and when
directed by the Bank from time to time, at its
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option and at the sole and exclusive discretion of the Bank. Until
such Lockbox can be established, the Borrower shall remit all
receivable cash payments and remittances to the Bank at least weekly
(at the close of business on each Friday) along with a detailed cash
receipts journal. It will be considered an immediate Event of
Default if the Lockbox is not set-up and operational within 45 days
from the date of this Agreement.
xi. Borrower will allow Bank to audit Borrower's Collateral,
including, but not limited to, Borrower's Accounts and accounts
receivable, at Borrower's expense, no later than ninety (90) days
after the execution of this Agreement and annually thereafter, upon
reasonable notice during normal business hours. Provided, however,
if an Event of Default has occurred, Bank may audit Borrower's
Collateral, including, but not limited to, Borrower's Accounts and
accounts receivable at Bank's sole and exclusive discretion and
without notification and authorization from Borrower.
xii. Maintain at all times an Adjusted Quick Ratio of at least 1.10
to 1.0, which Adjusted Quick Ratio will be tested by Bank on a
monthly and quarterly basis.
xiii. Maintain (together with Borrower's Subsidiaries) all of
Borrower's and Borrower's Subsidiaries' primary operating,
depository, investment and securities accounts with Bank (or Bank's
affiliate with respect to securities accounts), which accounts shall
represent at least 85% of the dollar value of the Borrower's and
such Subsidiaries accounts at all financial institutions.
Notwithstanding the foregoing, Borrower may maintain the securities
listed on Schedule D hereto in the securities account listed on
Schedule D hereto provided that no new securities are added to such
account hereafter.
4. Negative Covenants. Borrower will not do any of the
following without Bank's prior written consent:
i. Assign, lease, transfer, sell or grant, or permit any lien or
security interest in the Collateral, except for (i) transfers of
inventory in the ordinary course of business, (ii) transfers of
worn-out or obsolete equipment, and (iii) Permitted Liens.
ii. Create, incur, assume, or be liable for any Indebtedness,
except for Indebtedness under the capital leases listed on Schedule
C hereto.
iii. Directly or indirectly enter into or permit to exist any
material transaction with any affiliate or Subsidiary of Borrower or
make any distributions to any affiliate or Subsidiary, except for
transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to
Borrower than would be obtained in an arm's length transaction with
a nonaffiliated person.
iv. 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, other than mergers and
consolidations of any subsidiary of Borrower (i) with Borrower
(provided Borrower is the surviving legal entity) or (ii) with any
other subsidiary of Borrower.
v. 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 Advance
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, or
permit any of its subsidiaries to do so, which failure or violation
would have a material adverse effect on Borrower's financial
condition.
vi. Relocate its principal executive office or add any new offices
or business locations or keep any Collateral in any additional
locations, or (ii) change its state of formation, or (iii) change
its organizational structure, or (iv) change its legal name, or (v)
change any organizational number (if
9
any) assigned by its state of formation, without, in any such case,
providing Bank with thirty (30) days prior notice thereof.
vii. Keep any Collateral in the possession of any third party
bailee (such as at a warehouse). In the event that Borrower, after
the date hereof, intends to store or otherwise deliver any
Collateral to such a bailee, then Borrower shall receive the prior
written consent of Bank and such bailee must acknowledge in writing
that the bailee is holding such Collateral for the benefit of Bank.
viii. Borrower agrees that any disposition of the Collateral in
violation of this Agreement, by either the Borrower or any other
Person, shall be deemed to violate the rights of the Bank under the
Code.
ix. Create, incur, or allow any lien on any of its property, other
than Permitted Liens, or assign or convey any right to receive
income, including the sale of any Accounts, or permit any Collateral
not to be subject to the first priority security interest granted
herein. The Collateral may also be subject to Permitted Liens.
x. Directly or indirectly acquire or own any Person, except for
subsidiaries existing on the date hereof or hereafter acquired with
the consent of the Bank, or make any investment in any Person, other
than Permitted Investments, or permit any of its Subsidiaries to do
so; or pay any dividends, other than, provided no Event of Default
has occurred and is continuing, dividends on Borrower's outstanding
Series C Preferred Stock in aggregate amount not to exceed
$400,000.00 in any fiscal year, or dividends payable in shares of
its capital stock, or make any distribution or payment or redeem,
retire or purchase any capital stock.
xi. 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. Adjustments. If any Account Debtor asserts a discount, allowance,
return, offset, defense, warranty claim, or the like on a Financed Receivable
(an "Adjustment") or if Borrower breaches any of the representations, warranties
or covenants set forth in Section 6, Borrower will promptly advise Bank.
Borrower will resell any rejected, returned, or recovered personal property for
Bank, at Borrower's expense, and pay proceeds to Bank. While Borrower has
returned goods that are Borrower property, Borrower will segregate and xxxx them
"Subject to a Security Interest on behalf of Silicon Valley Bank." Bank has a
security interest in the Financed Receivables and until receipt of payment, has
the right to take possession of any rejected, returned, or recovered personal
property.
8. 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 this Agreement.
Any security interest shall be a first priority security interest in the
Collateral. The Collateral may also be subject to Permitted Liens. Bank may
place a "hold" on any deposit account pledged as Collateral. Borrower is not a
party to, nor is bound by, any material license or other material agreement with
respect to which the Borrower is the licensee that prohibits or otherwise
restricts Borrower from granting a security interest in Borrower's interest in
such license or agreement or any other property. Without prior consent from
Bank, Borrower shall not enter into, or become bound by, any such license or
agreement which is reasonably likely to have a material impact on Borrower's
business or financial condition. Borrower shall take such commercially
reasonable steps as Bank reasonably requests to obtain the consent of, or waiver
by, any Person whose consent or waiver is necessary for all such licenses or
contract rights to be deemed "Collateral" and for Bank to have a security
interest in it that might otherwise be restricted or prohibited by law or by the
terms of any such license or agreement, whether now existing or entered into in
the future.
Borrower agrees that any disposition of the Collateral
in violation of this Agreement, by either the Borrower or any
other Person, shall be deemed to violate the rights of the
Bank under the Code. If the Agreement is terminated, Bank's
lien and security interest in the Collateral shall continue
until Borrower fully satisfies its Obligations. If Borrower
shall at any time, acquire a commercial tort claim, Borrower
shall promptly notify Bank in a writing signed by Borrower of
the brief details thereof and grant to Bank in such
10
writing a security interest therein and in the proceeds thereof, all
upon the terms of this Agreement, with such writing to be in form
and substance satisfactory to Bank.
9. Events of Default. Any one or more of the following is an Event
of Default.
i. Borrower fails to pay any amount owed to Bank within three (3)
business days of when due;
ii. Borrower files or has filed against it any Insolvency
Proceedings or any assignment for the benefit of creditors, or
appointment of a receiver or custodian for any of its assets, and
such Insolvency Proceedings, assignment, or appointment is not
dismissed or stayed within forty-five (45) days;
iii. Borrower becomes insolvent or is generally not paying its
debts as they become due;
iv. Any involuntary lien, garnishment, attachment (other than
Permitted Liens) attaches to the Financed Receivables or any
Collateral or the service of process upon Bank seeking to attach, by
mesne or trustee process any funds of Borrower on deposit with Bank;
v. Borrower breaches any covenant, agreement, warranty, or
representation set forth in this Agreement or any other agreement
between Borrower and Bank relating to, or executed in connection
with, this Agreement and as to any default under a covenant,
agreement, or warranty, that can be cured, has failed to cure the
default within fifteen (15) days after the occurrence thereof;
provided, however grace periods provided under this section shall
not apply to financial covenants or any other covenants that are
required to be satisfied, completed or tested by a date certain;
vi. A judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least Five Hundred Thousand
Dollars ($500,000) shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period of ten (10) days;
vii. An event of default occurs under any guaranty of the
Obligations or any material provision of any guaranty is not valid
or enforceable or a guaranty is repudiated or terminated;
viii. An Event of Default occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination
agreement with Bank;
ix. Any creditor that has signed a subordination agreement with
Bank breaches any material terms of the subordination agreement; or
x. Any of the following occurs: (i) a material impairment in the
perfection or priority of Bank's security interest in the Collateral
or in the value of such Collateral; or (ii) a material adverse
change in the business, operations, or condition (financial or
otherwise) of the Borrower occurs; or (iii) a material impairment of
the prospect of repayment of any portion of the Obligations; or (iv)
Bank determines, based upon information available to it and in its
reasonable judgment, that there is a substantial likelihood that
Borrower shall fail to comply with one or more of the financial
covenants in Section 6.3 during the next succeeding financial
reporting period.
10. Remedies.
1. Remedies Upon Default. When an Event of Default occurs, (1)
Bank may stop financing receivables or extending credit to Borrower;
(2) at Bank's option and on demand, all or a portion of the
Obligations (or, for an Event of Default described in Section 9(B),
automatically and without demand) are due and payable in full; (3)
the Bank may 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; (4) Bank may exercise all
rights and remedies under this Agreement and applicable law,
including those of a secured party under the Code, power of attorney
rights in Section 5 for the Collateral, and the right to ship,
reclaim, recover, store, finish,
11
maintain, repair, prepare for sale, advertise for sale, collect,
dispose of, sell, lease, use, and realize upon all Financed
Receivables and Collateral in any commercially reasonable manner;
and (5) Bank may make any payments and do any acts it reasonably
considers necessary or reasonable to protect its security interest
in the Collateral. Borrower shall assemble the Collateral if Bank
requests and make it available as Bank designates. Bank may enter
premises where the Collateral is located, take and maintain
possession of any part of the Collateral, and pay, purchase,
contest, or compromise any lien which appears to be prior or
superior to its security interest and pay all expenses incurred.
Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or
remedies. Borrower agrees that any notice of sale required to be
given to Borrower is deemed given if at least ten (10) days before
the sale may be held.
2. 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.
3. Default Rate. After the occurrence of an Event of Default,
all Obligations shall accrue interest at the Applicable Rate plus
three percent (3.0%) per annum.
11. Fees, Costs and Expenses. The Borrower will pay on demand all
reasonable out-of-pocket fees, costs and expenses (including reasonable
attorneys' and professionals fees with costs and expenses) that Bank incurs
from: (a) preparing, negotiating, administering, and enforcing this Agreement or
related agreement, including any amendments, waivers or consents, (b) any
litigation or dispute relating to the Financed Receivables, the Collateral,or
this Agreement or any other document or agreement relating to this Agreement,
(c) enforcing any rights against Borrower or any guarantor, or any Account
Debtor, (d) protecting or enforcing its interest in the Financed Receivables or
other Collateral, (e) collecting the Financed Receivables and the Obligations,
and (f) any bankruptcy case or insolvency proceeding involving Borrower, any
Financed Receivable, the Collateral, any Account Debtor.
12. Choice of Law, Venue and Jury Trial Waiver. This Agreement shall
be construed, governed, and enforced pursuant to the laws (without regard to
conflict of law principles) of The Commonwealth of Massachusetts. Borrower and
Bank each submits to the non-exclusive jurisdiction of the State and Federal
courts in Suffolk County, Massachusetts.
BORROWER AND BANK EACH WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT 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.
13. Notices. Notices or demands by either party about this Agreement
must be in writing and personally delivered or sent by an overnight delivery
service, by certified mail postage prepaid return receipt requested, or by FAX
to the addresses listed at the beginning of this Agreement. Notices to Borrower
shall be sent to the attention of its Chief Financial Officer. A party may
change notice address by written notice to the other party.
14. General Provisions.
1. Successors and Assigns. This Agreement binds and is for the
benefit of 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 may, without the consent of or notice to Borrower,
sell, transfer, or grant participation in any part of Bank's
obligations, rights or benefits under this Agreement.
12
2. Indemnification. Borrower will indemnify, defend and hold
harmless Bank and its officers, employees, and agents against: (a)
obligations, demands, claims, and liabilities asserted by any other
party in connection with the transactions contemplated by this
Agreement; and (b) losses or reasonable out-of-pocket expenses
incurred, or paid by Bank from or consequential to the transactions
between Bank and Borrower pursuant to this Agreement (including
reasonable attorneys fees and expenses), except for losses caused by
Bank's gross negligence or willful misconduct.
3. Right of Set-Off. Borrower and any guarantor hereby grant
to Bank, a lien, security interest and right of setoff as security
for all Obligations to Bank, whether now existing or hereafter
arising upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping
or control of Bank or any entity under the control of Silicon Valley
Bank or in transit to any of them. At any time after the occurrence
and during the continuance of an Event of Default, without demand or
notice, Bank may set off the same or any part thereof and apply the
same to any liability or obligation of Borrower and any guarantor
regardless of the adequacy of any other collateral securing the
Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS
RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF
WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE
BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND
IRREVOCABLY WAIVED.
4. Time of Essence. Time is of the essence for performance of
all obligations in this Agreement.
5. Application of Funds. Borrower agrees that any disposition
of the Collateral in violation of this Agreement, by either the
Borrower or any other Person, shall be deemed to violate the rights
of the Bank under the Code.
6. Severability of Provision. Each provision of this Agreement
is severable from every other provision in determining the
enforceability of any provision.
7. Amendments in Writing, Integration. All amendments to this
Agreement must be in writing. This Agreement is the entire agreement
about this subject matter and supersedes prior negotiations or
agreements.
8. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts
and when executed and delivered are one Agreement.
9. Remedies Cumulative. Bank's rights and remedies under this
Agreement, or any other documents, instruments and agreement by and
between Borrower and Bank are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank's
exercise of one right or remedy is not an election, and Bank's
waiver of any Event of Default is not a continuing waiver. Bank's
delay is not a waiver, election, or acquiescence. No waiver
hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it was
given.
10. Survival. All covenants, representations and warranties
made in this Agreement continue in force while any Financed
Receivable amount remains outstanding. Borrower's indemnification
obligations survive until all statutes of limitations for actions
that may be brought against Bank have run.
11. Confidentiality. Bank will use the same degree of care
handling Borrower's confidential information that it uses for its
own confidential information, but may disclose information; (i) to
its subsidiaries or affiliates in connection with their
13
business with Borrower, (ii) to prospective transferees or
purchasers of any interest in the Agreement, (iii) as required by
law, regulation, subpoena, or other order, (iv) as required in
connection with an examination or audit and (v) as it considers
appropriate exercising the remedies under this Agreement.
Confidential information does not include information that is
either: (a) in the public domain or in Bank's possession when
disclosed, or becomes part of the public domain after disclosure to
Bank; or (b) disclosed to Bank by a third party, if Bank does not
know that the third party is prohibited from disclosing the
information.
12. Accounting and Other Terms. Accounting terms not defined
in this Agreement shall be construed following GAAP. Calculations
and determinations must be made following GAAP. The term "financial
statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without
limitation," in this or any document executed in connection
herewith. All terms contained in this Agreement, unless otherwise
indicated or defined herein, shall have the meanings provided by the
Code, to the extent such terms are defined therein.
14
EXECUTED under seal as of the date first written above.
INTERNET COMMERCE CORPORATION
By ____________________________________
Title Chief Financial Officer
SILICON VALLEY BANK
By_____________________________________
Title ___________________________________
15
EXHIBIT A
The Collateral consists of all of Borrower's right, title and
interest in and to the following:
All goods, equipment, inventory, contract rights or rights to
payment of money, leases, license agreements, franchise agreements,
general intangibles (including payment intangibles), accounts
(including health-care receivables), documents, instruments
(including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit
rights (whether or not the letter of credit is evidenced by a
writing), commercial tort claims, securities, and all other
investment property supporting obligations, and financial assets,
whether now owned or hereafter acquired, wherever located; and
Any copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and
derivative work, whether published or unpublished, now owned or
later acquired; any patents, trademarks, service marks and
applications therefor; trade styles, trade names, any trade secret
rights, including any rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; or any claims for
damages by way of any past, present and future infringement of any
of the foregoing; and
All Borrower's Books relating to the foregoing and any and all
claims, rights and interests in any of the above and all
substitutions for, additions, attachments, accessories, accessions
and improvements to and replacements, products, proceeds and
insurance proceeds of any or all of the foregoing.
16
Exhibit "B"
[GRAPHIC OMITTED]
SILICON VALLEY BANK
SPECIALTY FINANCE DIVISION
Compliance Certificate
I, as authorized officer of INTERNET COMMERCE CORPORATION ("Borrower") certify
on behalf of Borrower under the Accounts Receivable Financing Agreement (the
"Agreement") between Borrower and Silicon Valley Bank ("Bank") as follows.
Borrower represents and warrants for each Financed Receivable:
It is the owner with legal right to sell, transfer and assign it as
collateral security;
The correct amount is on the Invoice Transmittal and is not disputed;
Payment is not contingent on any obligation or contract and it has
fulfilled all its obligations as of the Invoice Transmittal date;
It is based on an actual sale and delivery of goods and/or services
rendered, due to Borrower, it is not past due or in default, has not been
previously sold, assigned, transferred, or pledged and is free of any liens,
security interests and encumbrances;
To the best of Borrower's knowledge as of the date hereof there are no
defenses, offsets, counterclaims or agreements for which the Account Debtor may
claim any deduction or discount;
It reasonably believes no Account Debtor is insolvent or subject to any
Insolvency Proceedings;
It has not filed or had filed against it proceedings and does not
anticipate any filing;
Bank has the right to endorse and/ or require Borrower to endorse all
payments received on Financed Receivables and all proceeds of Collateral.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statement contained in the certificates or statement not misleading.
Additionally, Borrower represents and warrants as follows:
Borrower 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. The execution, delivery and performance of this Agreement has
been duly authorized, and do not conflict with Borrower's formations 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, which default would have a material adverse effect on
Borrower's financial condition.
Borrower has good title to the Collateral. All inventory is in all
material respects of good and marketable quality, free from material defects.
17
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act and Borrower has not violated
any laws, ordinances or rules, except for such noncompliance or violations that
would not have a material adverse effect on the financial condition of the
Borrower. None of Borrower's properties or assets has been used by Borrower 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 has timely filed all required tax returns and paid, or made
adequate provision to pay, all taxes. Borrower 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 for such consents, approvals,
authorizations, declarations, filings, and notices, the failure of which to
obtain or provide would not have a material adverse effect on the financial
condition of the Borrower.
All representations and warranties in the Agreement are true and correct
in all material respects on this date.
Sincerely,
INTERNET COMMERCE CORPORATION
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TITLE
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