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EXHIBIT 10.8
LOAN AND SECURITY AGREEMENT
Dated as of September 21, 1998
between
CoSine Communications, Inc.
a California corporation
as "Borrower",
and
VENTURE LENDING & LEASING II, INC.,
a Maryland corporation
as "Lender"
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LOAN AND SECURITY AGREEMENT
The Borrower and Lender identified on the cover page of this document have
entered or anticipate entering into one or more transactions pursuant to which
Lender agrees to make available to Borrower a loan facility governed by the
terms and conditions set forth in this document and one or more Supplements
executed by Borrower and Lender which incorporate this document by reference.
Each Supplement constitutes a supplement to and forms part of this document, and
will be read and construed as one with this document, so that this document and
the Supplement constitute a single agreement between the parties (collectively
referred to as this "Agreement").
Accordingly, the parties agree as follows:
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS. The terms defined in Article 10 and in the Supplement will
have the meanings therein specified for purposes of this Agreement.
1.2 INCONSISTENCY. In the event of any inconsistency between the provisions
of any Supplement and this document, the provisions of the Supplement will be
controlling for the purpose of all relevant transactions.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 THE COMMITMENT. Subject to the terms and conditions of this Agreement,
Lender agrees to make term loans to Borrower from time to time from the Closing
Date and to, but not including, the Termination Date in an aggregate principal
amount not exceeding the Commitment. The Commitment is not a revolving credit
commitment, and Borrower does not have the right to repay and reborrow
hereunder. Each Loan requested by Borrower to be made on a single Business Day
shall be for a minimum principal amount set forth in the Supplement, except to
the extent the remaining Commitment is a lesser amount.
2.2 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan shall be evidenced by a
separate Note payable to the order of Lender, in the total principal amount of
the Loan. Principal and interest of each Loan shall be payable at the times and
in the manner set forth in the Note.
2.3 PROCEDURES FOR BORROWING.
(a) Borrower shall give Lender, at least five (5) Business Days' prior
to a proposed Borrowing Date, written notice of any request for borrowing
hereunder (a "Borrowing Request"). Each Borrowing Request shall be in
substantially the form of Exhibit "B" to the Supplement, shall be executed
by a responsible executive or financial officer of Borrower, and shall
state how much is requested, and shall be accompanied by such other
information and documentation as Lender may reasonably request.
(b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing
Date, if Borrower has satisfied the conditions precedent in Article 4,
Lender shall make the Loan available to Borrower in immediately available
funds.
2.4 INTEREST. Basic Interest on the outstanding principal balance of each
Loan shall accrue daily at the Designated Rate from the Borrowing Date until the
Maturity Date.
2.5 TERMINAL PAYMENT. Borrower shall pay the Terminal Payment with respect
to each Loan on the Maturity Date of such Loan.
2.6 INTEREST RATE CALCULATION. Basic Interest, along with charges and fees
under this Agreement and any Loan Document, shall be calculated for actual days
elapsed on the basis of a 360-day year, which results in higher interest, charge
or fee payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay Lender interest, charges or fees at a rate in excess of the
highest rate permitted by applicable law from time to time in effect.
2.7 DEFAULT INTEREST. Any unpaid payments of principal or interest or the
Terminal Payment with respect to any Loan shall bear interest from their
respective maturities, whether scheduled or accelerated, at the Designated Rate
for such Loan plus five percent (5.00%) per annum, until paid in full, whether
before or after judgment (the "Default Rate"). Borrower shall pay such interest
on demand.
2.8 LATE CHARGES. If Borrower is late in making any payment of principal or
interest or Terminal Payment under this Agreement by more than fifteen
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(15) days. Borrower agrees to pay a late charge of five percent (5%) of the
installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose of
defraying the expenses incidental to the handling of such delinquent amounts.
Borrower acknowledges that such late charge represents a reasonable sum
considering all of the circumstances existing on the date of this Agreement and
represents a fair and reasonable estimate of the costs that will be sustained by
Lender due to the failure of Borrower to make timely payments. Borrower further
agrees that proof of actual damages would be costly and inconvenient. Such late
charge shall be paid without prejudice to the right of Lender to collect any
other amounts provided to be paid or to declare a default under this Agreement
or any of the other Loan Documents or from exercising any other rights and
remedies of Lender.
2.9 LENDER'S RECORDS. Principal, Basic Interest, Terminal Payments and all
other sums owed under any Loan Document shall be evidenced by entries in records
maintained by Lender for such purpose. Each payment on and any other credits
with respect to principal, Basic Interest, Terminal Payments and all other sums
outstanding under any Loan Document shall be evidenced by entries in such
records. Absent manifest error, Lender's records shall be conclusive evidence
thereof.
2.10 GRANT OF SECURITY INTERESTS. To secure the timely payment and
performance of all of Borrower's Obligations to Lender, Borrower hereby grants
to Lender continuing security interests in all of the Collateral.
Notwithstanding the foregoing, the security interest granted herein shall not
extend to and the term "Collateral" shall not include any property, rights or
licenses to the extent the granting of a security interest therein would be
contrary to applicable law.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that, except as set forth in the
Supplement or any schedule of exceptions executed by the parties, as of the
Closing Date and each Borrowing Date:
3.1 DUE ORGANIZATION. Borrower is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good standing
in each other jurisdiction in which its business is conducted or its properties
are located, except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution, delivery
and performance of all Loan Documents executed by Borrower are within Borrower's
powers, have been duly authorized, and are not in conflict with Borrower's
articles or certificate of incorporation or by-laws, or the terms of any charter
or other organizational document of Borrower, as amended from time to time; and
all such Loan Documents constitute valid and binding obligations of Borrower,
enforceable in accordance with their terms (except as may be limited by
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights in general, and subject to general principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. Borrower has complied with all
licensing, permit and fictitious name requirements necessary to lawfully conduct
the business in which it is engaged, and to any sales, leases or the furnishing
of services by Borrower, including without limitation those requiring consumer
or other disclosures, the noncompliance with which would have a Material Adverse
Effect.
3.4 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES.
(a) Borrower owns or is licensed or otherwise has the right to use
all of the patents, trademarks, service marks, trade names, copyrights,
contractual franchises, authorizations and other similar rights that are
reasonably necessary for the operation of its business, without conflict with
the rights of any other Person.
(b) To Borrower's knowledge, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or now
contemplated to be employed, by Borrower infringes upon any rights held by any
other Person.
(c) No claim or litigation regarding any of the foregoing is pending
or, to Borrower's knowledge, threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or proposed which, in either case, could reasonably be expected to
have a Material Adverse Effect.
3.5 NO CONFLICT. To the best of Borrower's knowledge, the execution,
delivery, and performance by Borrower of all Loan Documents are not in conflict
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with any law, rule, regulation, order or directive, or any indenture,
agreement, or undertaking to which Borrower is a party or by which Borrower may
be bound or affected.
3.6 NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no litigation, tax
claim, proceeding or dispute pending, or, to the knowledge of Borrower,
threatened against or affecting Borrower or its property which could reasonably
be expected to have a Material Adverse Effect.
3.7 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial statements
which have been delivered to Lender fairly and accurately reflect Borrower's
financial condition as of the latest date of such financial statements; and,
since that date there has been no Material Adverse Change.
3.8 NO SUBSIDIARIES. Borrower is not a majority owner of or in a control
relationship with any other business entity.
3.9 ENVIRONMENTAL MATTERS. Borrower is in compliance with such
Environmental Laws, except to the extent a failure to be in such compliance
could not reasonably be expected to have a Material Adverse Effect on Borrower's
operations, properties or financial condition.
3.10 NO EVENT OF DEFAULT. No Default or Event of Default has occurred and
is continuing.
3.11 FULL DISCLOSURE. None of the representations or warranties made by
Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of Borrower
in connection with the Loan Documents (including disclosure materials delivered
by or on behalf of Borrower to Lender prior to the Closing Date) taken as a
whole, contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered. It is recognized by the Lender that
projections and forecasts provided by or on behalf of the Borrower, although
reflecting the Borrower's good faith projections or forecasts based on methods
and data which the Company believes to be reasonable and accurate, are not to be
viewed as facts and that actual results during the periods covered by and such
projections and forecasts may (and are likely to) differ from the projected or
forecasted results.
3.12 SPECIFIC REPRESENTATIONS REGARDING COLLATERAL.
(a) TITLE. Except for the security interests created by this Agreement and
Permitted Liens, (i) Borrower is and will be the unconditional legal and
beneficial owner of the Collateral, and (ii) the Collateral is genuine and
subject to no Liens, rights or defenses of others. There exist no prior
assignments or encumbrances of record with the U.S. Patent and Trademark Office
affecting any Collateral in favor of any third party other than Lender.
(b) RIGHTS TO PAYMENT. The names of the obligors, amount owing to Borrower,
due dates and all other information with respect to the Rights to Payment are
and will be correctly stated in all material respects in all Records relating to
the Rights to Payment. Borrower further represents and warrants, to its
knowledge, that each Person appearing to be obligated on a Right to Payment has
authority and capacity to contract and is bound as it appears to be.
(c) LOCATION OF COLLATERAL. Borrower's chief executive office, Inventory,
Records, Equipment, and any other offices or places of business are located at
the address(es) shown on the Supplement.
(d) BUSINESS NAMES. Other than its full corporate name, Borrower has not
conducted business using any trade names or fictitious business names except as
shown on the Supplement.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO FIRST LOAN. The obligation of Lender to make its first
Loan hereunder is, in addition to the conditions precedent specified in Article
4.2, subject to the fulfillment of the following conditions and to the receipt
by Lender of the documents described below, duly executed and in form and
substance satisfactory to Lender and its counsel:
(a) RESOLUTIONS. A certified copy of the resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.
(b) INCUMBENCY AND SIGNATURES. A certificate of the secretary of Borrower
certifying the names of the officer or officers of Borrower authorized to sign
the Loan Documents, together with a sample of the true signature of each such
officer.
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(c) LEGAL OPINION. The opinion of legal counsel for Borrower as to such
matters as Lender may reasonably request, including the matters covered by
Sections 3.1, 3.2, 3.5 and 3.6 hereof.
(d) ARTICLES AND BY-LAWS. Certified copies of the Articles or Certificate
of Incorporation and By-Laws of Borrower, as amended through the Closing Date.
(e) THIS AGREEMENT. A counterpart of this Agreement and an initial
Supplement, with all schedules completed and attached thereto, and disclosing
such information as is acceptable to Lender.
(f) FINANCING STATEMENTS. Filing copies (or other evidenced of filing
satisfactory to Lender and its counsel) of such Uniform Commercial Code
financing statements, collateral assignments and termination statements, with
respect to the Collateral as Lender shall request.
(g) PATENT AND TRADEMARK ASSIGNMENTS. If required by the Supplement,
patent and trademark collateral assignments executed by Borrower.
(h) LIEN SEARCHES. Uniform Commercial Code lien, judgment, bankruptcy and
tax lien searches of Borrower from such jurisdictions or offices as Lender may
reasonably request, all as of a date reasonably satisfactory to Lender and its
counsel.
(i) GOOD STANDING CERTIFICATE. A Certificate of status or good standing of
Borrower as of a date acceptable to Lender from the jurisdiction of Borrower's
organization and any foreign jurisdictions where Borrower is or should be
qualified to do business.
(j) WARRANT. A warrant issued by Borrower to Lender exercisable for such
number, type and class of shares of Borrower's capital stock, and for an
initial exercise price as is specified in the Supplement.
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make its initial
Loan and each subsequent Loan is subject to the following further conditions
precedent that:
(a) NO DEFAULT. No Default or Event of Default has occurred and is
continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement are true and correct as of the Borrowing Date of such Loan.
(b) NO MATERIAL ADVERSE CHANGE. No Material Adverse Change shall have
occurred since the date of the most recent financial statements submitted to
Lender.
(c) BORROWING REQUEST. Borrower shall have delivered to Lender a Borrowing
Request for such Loan.
(d) NOTE. Borrower shall have delivered an executed Note evidencing such
Loan, in form and substance satisfactory to Lender.
(e) SUPPLEMENTAL LIEN FILINGS. Borrower shall have executed and delivered
such amendments or supplements to this Agreement and such financing statements
as Lender may reasonably request in connection with the proposed Loan, in order
to create or perfect or to maintain the perfection of Lender's Liens on the
Collateral.
(f) VCOC LIMITATION. Lender shall not be obligated to make any Loan under
its Commitment if at the time of or after giving effect to the proposed Loan
Lender would no longer qualify as: (A) a "venture capital operating company"
under U.S. Department of Labor Regulations Section 25103-101(d), Title 29 of
the Code of Federal Regulations, as amended; and (B) a "business development
company" under the provisions of federal Investment Company Act of 1940, as
amended; and (C) a "regulated investment company" under the provisions of the
Internal Revenue Code of 1986, as amended.
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of all
obligations to Lender, Borrower will:
5.1 NOTICE TO LENDER. Promptly give written notice to Lender of:
(a) Any litigation or administrative or regulatory proceeding affecting
Borrower where the amount claimed against Borrower is at the Threshold Amount
or more, or where the granting of relief requested could have a Material
Adverse Effect.
(b) Any substantial dispute which may exist between Borrower or any
governmental or regulatory authority.
(c) The occurrence of any Default or any Event of Default.
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(d) Any change in the location of any of Borrower's places of business or
Collateral at least thirty (30) days in advance of such change, or of the
establishment of any new, or the discontinuance of any existing, place of
business.
(e) Any dispute or default by Borrower or any other party under any joint
venture, partnering, distribution, cross-licensing, strategic alliance,
collaborative research or manufacturing, license or similar agreement which
could reasonably be expected to have a Material Adverse Effect.
(f) Any other manner which has resulted or might reasonably result in a
Material Adverse Change.
5.2 FINANCIAL STATEMENTS. Deliver to each Lender or cause to be delivered
to Lender, in form and detail satisfactory to Lender the following financial
information, which Borrower warrants shall be accurate and complete in all
material respects:
(a) MONTHLY FINANCIAL STATEMENTS. As soon as available but no later than
thirty (30) days after the end of each month, Borrower's balance sheet as of
the end of such period, and Borrower's income statement for such period and for
that portion of Borrower's financial reporting year ending with such period,
prepared and attested by a responsible financial officer of Borrower as being
complete and correct in all material respects and fairly presenting Borrower's
financial condition and the results of Borrower's operations. After a Qualified
Public Offering, the foregoing interim financial statements shall be delivered
no later than 45 days after each fiscal quarter and for the quarter-annual
fiscal period then ended.
(b) YEAR-END FINANCIAL STATEMENTS. As soon as available but no later than
ninety (90) days after and as of the end of each financial reporting year, a
complete copy of Borrower's audit report, which shall include balance sheet,
income statement, statement of changes in equity and statement of cash flows
for such year, prepared and certified by an independent certified public
accountant selected by Borrower and satisfactory to Lender (the "Accountant").
The Accountant's certification shall not be qualified or limited due to a
restricted or limited examination by the Accountant of any material portion of
Borrower's records or otherwise.
(c) COMPLIANCE CERTIFICATES. Simultaneously with the delivery of each set
of financial statements referred to in paragraphs (a) and (b) above, a
certificate of the chief financial officer of Borrower substantially in the
form of Exhibit "C" to the Supplement (i) setting forth in reasonable detail
any calculations required to establish whether Borrower is in compliance with
any financial covenants or tests set forth in the Supplement, and (ii) stating
whether any Default or Event of Default exists on the date of such certificate,
and if so, setting forth the details thereof and the action which Borrower is
taking or proposes to take with respect thereto.
(d) GOVERNMENT REQUIRED REPORTS; PRESS RELEASES. Promptly after sending,
issuing, making available, or filing, copies of all statements released to any
news media for publication, all material reports, proxy statements, and
financial statements that Borrower sends or makes available to its
stockholders, and, not later than five (5) days after actual filing or the date
such filing was first due, all material registration statements and reports that
Borrower files or is required to file with the Securities and Exchange
Commission, or any other governmental or regulatory authority.
(e) OTHER INFORMATION. Such other statements, lists of property and
accounts, budgets, forecasts, reports, or other information as Lender may from
time to time reasonably request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Permit Lender, as a "venture
capital operating company" to participate in, and influence the conduct of
management of Borrower through the exercise of "management rights," as such
terms are defined in 29 C.F.R. Section 25103-101(d), and:
(a) Permit Lender to make available to Borrower, at no cost to Borrower,
"significant managerial assistance", as defined in Section 2(a)(47) of the
Investment Company Act of 1940, as amended, either in the form of: (i)
consulting arrangements with Lender or any of its officers, directors,
employees or affiliates, (ii) Borrower's allowing Lender to provide
recommendations of prospective candidates for election to Borrower's Board of
Directors, or (iii) Lender, at Borrower's request, seeking the services of
third-party consultants to aid Borrower with respect to its management and
operations;
(b) Permit Lender to make available consulting and advisory services to
officers of Borrower regarding Borrower's equipment acquisition and financing
plans, and such other matters affecting the business, financial condition and
prospects of Borrower as Lender shall reasonably deem relevant; and
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(c) If Lender reasonably believes that financial or other developments
affecting Borrower have impaired or are likely to impair Borrower's ability to
perform its obligations under this Agreement, permit Lender reasonable access
to Borrower's management and/or Board of Directors and opportunity to present
Lender's views with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower's existence, present form of
business, and all rights and privileges necessary or desirable in the normal
course of its business; and keep all Borrower's property in good working order
and condition, ordinary wear and tear excepted.
5.5 INSURANCE. Obtain and keep in force insurance in such amounts and
types as is usual in the type of business conducted by Borrower. Such insurance
policies must be in form and substance satisfactory to Lender, and shall list
Lender as an additional insured or loss payee, as applicable, on endorsement(s)
in form reasonably acceptable to Lender. Borrower shall furnish to Lender such
endorsements, and upon Lender's request, copies of any or all such policies.
5.6 ACCOUNTING RECORDS. Maintain adequate books, accounts and records, and
prepare all financial statements in accordance with GAAP (except as otherwise
noted therein or for the absence of footnotes and subject to normal year-end
adjustments with respect to unaudited financial statements), and in compliance
with the regulations of any governmental or regulatory authority having
jurisdiction over Borrower or Borrower's business; and permit employees or
agents of Lender at such reasonable times and upon such reasonable notice as
Lender may request, at Lender's expense, to inspect Borrower's properties, and
to examine, and make copies and memoranda of Borrower's books, accounts and
records.
5.7 COMPLIANCE WITH LAWS. Comply with all laws (including Environmental
Laws), rules, regulations applicable to, and all orders and directives of any
governmental or regulatory authority having jurisdiction over, Borrower or
Borrower's business, and with all material agreements to which Borrower is a
party, except where the failure to so comply would not have a Material Adverse
Effect.
5.8 TAXES AND OTHER LIABILITIES. Pay all Borrower's material obligations
when due; pay all material taxes and other governmental or regulatory
assessments before delinquency or before any penalty attaches thereto, except
as may be contested in good faith by the appropriate procedures and for which
Borrower shall maintain appropriate reserves; and timely file all required
material tax returns.
5.9 SPECIAL COLLATERAL COVENANTS.
(a) MAINTENANCE OF COLLATERAL; INSPECTION. Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good
working order and salable condition, ordinary wear and tear excepted, deal with
the Collateral in all ways as are considered good practice by owners of like
property, and use the Collateral lawfully and, to the extent applicable, only
as permitted by Borrower's insurance policies. Maintain, or cause to be
maintained, Records, which are complete and accurate in all material respects
relating to the Collateral. Upon reasonable prior notice at reasonable times
during normal business hours, Borrower hereby authorizes Lender's officers,
employees, representatives and agents to inspect the Collateral and to discuss
the Collateral and the Records relating thereto with Borrower's officers and
employees, and, in the case of any Right to Payment, with any Person which is
or may be obligated thereon.
(b) FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to Lender
all financing statements, notices and other documents (including, without
limitation, any filings with the United States Patent and Trademark Office)
from time to time reasonably requested by any Lender to maintain a first
perfected security interest in the Collateral in favor of Lender; perform such
other acts, and execute and deliver to Lender such additional conveyances,
assignments, agreements and instruments, as Lender may at any time request in
connection with the administration and enforcement of this Agreement or
Lender's rights, powers and remedies hereunder.
(c) LIENS. Not create, incur, assume or permit to exist any Lien or grant
any other Person a negative pledge on any Collateral, except Permitted Liens.
(d) DOCUMENTS OF TITLE. Not sign or authorize the signing of any financing
statement or other document naming Borrower as debtor or obligor, or
acquiesce or cooperate in the issuance of any xxxx of lading, warehouse receipt
or other document or instrument of title with respect to any Collateral, except
those negotiated to Lender, or those naming Lender as secured party.
(e) DISPOSITION OF COLLATERAL. Not sell, transfer, lease or otherwise
dispose of any Equipment; or dispose of any other Collateral except for fair
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consideration and in the ordinary course of its business.
(f) CHANGE IN LOCATION OR NAME. Without at least 30 days prior written
notice to Lender: (a) not relocate any Collateral or Records, its chief
executive office, or establish a place of business at a location other than as
specified in the Supplement; and (b) not change its name, mailing address,
location of Collateral, or its legal structure.
(g) AGREEMENT WITH REAL PROPERTY OWNER/LANDLORD. Obtain and maintain such
acknowledgements, consents, waivers and agreements from the owner, lienholder,
mortgagee and landlord with respect to any real property on which Equipment is
located as Lender may require, all in form and substance satisfactory to Lender.
(h) CERTAIN AGREEMENTS ON RIGHTS TO PAYMENT. Other than in the ordinary
course of business, not make any material discount, credit, rebate or other
reduction in the original amount owing on a Right to Payment or accept in
satisfaction of a Right to Payment less than the original amount thereof.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all
obligations to Lender, Borrower will not (without Lender's prior written
consent):
6.1 INDEBTEDNESS. Be indebted for borrowed money, the deferred purchase
price of property, or leases which would be capitalized in accordance with
GAAP; or become liable as a surety, guarantor, accommodation party or otherwise
for or upon the obligation of any other Person, except:
(a) Indebtedness incurred for the acquisition of supplies or inventory on
normal trade credit; and other indebtedness incurred pursuant to one or more
transactions permitted under Section 6.4;
(b) Indebtedness not to exceed One Hundred Thousand Dollars ($100,000) in
aggregate principal amount outstanding at any time secured by security interests
covered by clause (c) of the definition of Permitted Lien;
(c) Indebtedness of Borrower under this Agreement; and
(d) Any Indebtedness approved by Lender prior to the Closing Date.
6.2 LIENS. Create, incur, assume or permit to exist any Lien, or grant
any other Person a negative pledge, on any of Borrower's property, except
Permitted Liens. Borrower and Lender agree that this covenant is not intended
to constitute a lien, deed of trust, equitable mortgage, or security interest
of any kind on any of Borrower's real property, and this Agreement shall not be
recorded or recordable. Notwithstanding the foregoing, however, violation of
this covenant by Borrower shall constitute an Event of Default.
6.3 DIVIDENDS. Except after a Qualified Public Offering, pay any
dividends or purchase, redeem or otherwise acquire or make any other
distribution with respect to any of Borrower's capital stock, except (a)
dividends or other distributions solely of capital stock of Borrower, (b)
repurchases of capital stock from directors, officers, employees and/or
consultants upon exercise of Borrower's right of repurchase upon termination of
employment or services under reverse vesting or similar repurchase plans, (c)
conversion by Borrower of any of its convertible securities into other
securities pursuant to the terms of such convertible securities or otherwise in
exchange therefor, and (d) capital stock repurchased with the proceeds of the
issuance of other capital stock of the Borrower.
6.4 CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, where Borrower is the surviving entity and which would
not reasonably be expected to increase the credit risk of Borrower to Lender.
6.5 SALES OF ASSETS. Sell, transfer, lease or otherwise dispose of any
of Borrower's assets except for fair consideration and in the ordinary course of
its business.
6.6 LOANS/INVESTMENTS. Make or suffer to exist any loans, guaranties,
advances, or investments, except:
(a) Accounts receivable in the ordinary course of Borrower's business;
(b) Investments in domestic certificates of deposit issued by, and other
domestic investments with, financial institutions organized under the laws of
the United States or a state thereof, having One Hundred Million Dollars
($100,000,000) in capital and a rating of at least "investment grade" or "A" by
Xxxxx'x or any successor rating agency;"
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(c) Investments in marketable obligations of the United States of America
and in open market commercial paper given the highest credit rating by a
national credit agency and maturing not more than one year from the creation
thereof; and
(d) Temporary advances to cover incidental expenses to be incurred in the
ordinary course of business.
(e) loans, guaranties, advances or investments in subsidiaries of Borrower;
(f) (1) travel advances and employee relocation loans and other employee
loans and advances in the ordinary course of business and (2) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower pursuant to employee stock purchase plans or agreements approved by
Borrower's Board of Directors;
(g) investments consisting of endorsements of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business;
(h) any investment permitted by Borrower's investment policy, as amended
from time to time, provided such investment policy (and any amendments thereto)
has been previously approved by Lender.
(i) investments permitted by Article 6.4;
(j) 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;
(k) investments consisting of notes receivable of, or prepaid royalties
and other credit extensions to, customers and suppliers, in the ordinary course
of business;
(l) hedge investments arising under currency agreements or interest rate
agreements entered into in the ordinary course of business;
(m) investments in joint ventures or strategic partnerships in the
ordinary course of business;
(n) deposit accounts of Borrower; and
(o) other investments not otherwise permitted in the Article 6.5 in an
aggregate principal amount not to exceed $250,000 at any one time.
6.7 TRANSACTIONS WITH RELATED PERSONS. Directly or indirectly enter into
any transaction with or for the benefit of a Related Person on terms more
favorable to the Related Person than would have been obtainable in an "arms'
length" dealing.
6.8 OTHER BUSINESS. Engage in any material line of business other than the
business Borrower conducts as of the Closing Date.
ARTICLE 7 - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT; ACCELERATION. Upon the occurrence and during the
continuation of any Default, the obligation of Lender to make any additional
Loan shall be suspended. The occurrence of any of the following (each, an
"Event of Default") shall terminate any obligation of Lender to make any
additional Loan; and shall, at the option of Lender (1) make all sums of Basic
Interest and principal, all Terminal Payments, and any Obligations and other
amounts owing under any Loan Documents immediately due and payable without
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor or any other notices or demands, and (2) give Lender the
right to exercise any other right or remedy provided by contract or applicable
law:
(a) Borrower shall fail to pay any principal, interest or Terminal Payment
under this Agreement, or fail to pay any fees or other charges when due under
any Loan Document, and such failure continues for five(5) Business Days or more
after the same first becomes due; or an Event of Default as defined in any
other Loan Document shall have occurred.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower under any Loan Document
shall prove to have been false or misleading in any material respect when made
or deemed made herein.
(c) Borrower shall fail to pay its debts generally as they become due or
shall commence any Insolvency Proceeding with respect to itself; an involuntary
Insolvency Proceeding shall be filed against Borrower, or a custodian,
receiver, trustee, assignee for the benefit of creditors, or other similar
official, shall be appointed to take possession, custody or control of the
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properties of Borrower, and such involuntary Insolvency Proceeding, petition or
appointment is acquiesced to by Borrower, or is not dismissed within sixty (60)
days; or the dissolution or termination of the business of the Borrower.
(d) Borrower shall be in default beyond any applicable period of grace or
cure under any other agreement involving the borrowing of money, the purchase
of property, the advance of credit or any other monetary liability of any kind
to Lender or to any Person which results in the acceleration of payment of such
obligation in an amount in excess of the Threshold Amount.
(e) Any governmental or regulatory authority shall take any judicial or
administrative action, or any defined benefit pension plan maintained by
Borrower shall have any unfunded liabilities, any of which, in the reasonable
judgment of Lender, might have a Material Adverse Effect.
(f) Any sale, transfer or other disposition of all or substantially all of
the assets of Borrower, including without limitation to any trust or similar
entity, shall occur.
(g) Any judgement(s) singly or in the aggregate in excess of the Threshold
Amount shall be entered against Borrower which remain unsatisfied, unvacated or
unstayed pending appeal for ten (10) or more days after entry thereof.
(h) Intentionally Omitted.
(i) Borrower shall fail to perform or observe any covenant contained in
Article 6 of this Agreement.
(j) Borrower shall fail to perform or observe any covenant contained in
this Agreement or any other Loan Document (other than a covenant which is dealt
with specifically elsewhere in this Article 7) and the breach of such covenant
is not cured within 30 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such breach first
becomes known to any officer of Borrower; provided, however, that if such
breach is not capable of being cured within such 30-day period and Borrower
timely notifies Lender of such fact and Borrower diligently pursues such cure,
then the cure period shall be extended to the date requested in Borrower's
notice but in no event more than 90 days from the initial breach; provided,
further, that such additional 60-day opportunity to cure shall not apply in the
case of any failure to perform or observe any covenant which has been the
subject of a prior failure within the preceding 180 days or which is a willful
and knowing breach by Borrower.
7.2 REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
an Event of Default, Lender shall be entitled to, at its option, exercise any
or all of the rights and remedies available to a secured party under the
Uniform Commercial Code or any other applicable law, and exercise any or all of
its rights and remedies provided for in this Agreement and in any other Loan
Document. The obligations of Borrower under this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any Obligations is rescinded or must otherwise be returned by Lender upon, on
account of, or in connection with, the insolvency, bankruptcy or reorganization
of Borrower or otherwise, all as though such payment had not been made.
7.3 SALE OF COLLATERAL. Upon the occurrence and during the continuance of an
Event of Default, Lender may sell all or any part of the Collateral, at public
or private sales, to itself, a wholesaler, retailer or investor, for cash, upon
credit or for future delivery, and at such price or prices as Lender may deem
commercially reasonable. To the extent permitted by law, Borrower hereby
specifically waives all rights of redemption and any rights of stay or appraisal
which it has or may have under any applicable law in effect from time to time.
Any such public or private sales shall be held at such times and at such
place(s) as Lender may determine. In case of the sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Lender until the selling price is paid by the purchaser, but Lender
shall not incur any liability in case of the failure of such purchaser to pay
for the Collateral and, in case of any such failure, such Collateral may be
resold. Lender, may, instead of exercising its power of sale, proceed to enforce
its security interest in the Collateral by seeking a judgment or decree of a
court of competent jurisdiction. Without limiting the generality of the
foregoing, if an Event of Default is in effect.
(1) Subject to the rights of any third parties, Lender may license, or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any Patents or Trademarks included in the Collateral
throughout the world for such term or terms, on such conditions and in such
manner as Lender shall in its sole discretion determine.
(2) Lender may (without assuming any obligations or liability thereunder),
at any time and from time to time, enforce (and shall have the
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exclusive right to enforce) against any licensee or sublicensee all rights and
remedies of Borrower in, to and under any Patent Licenses or Trademark Licenses
and take or refrain from taking any action under any thereof, and Borrower
hereby releases Lender from, and agrees to hold Lender free and harmless from
and against any claims arising out of, any lawful action so taken or omitted to
be taken with respect thereto other than claims arising out of Lender's gross
negligence or willful misconduct; and
(3) Upon request by Lender, Borrower will execute and deliver to Lender a
power of attorney, in form and substance reasonably satisfactory to Lender for
the implementation of any lease, assignment, license, sublicense, grant of
option, sale or other disposition of a Patent or Trademark. In the event of any
such disposition pursuant to this clause 3, Borrower shall supply its know-how
and expertise relating to the products or services made or rendered in
connection with Patents, the manufacture and sale of the products bearing
Trademarks, and its customer lists and other records relating to such Patents
or Trademarks and to the distribution of said products, to Lender.
7.4 BORROWER'S OBLIGATIONS UPON DEFAULT. Upon the request of Lender after
the occurrence and during the continuance of an Event of Default, Borrower will:
(a) Assemble and make available to Lender the Collateral at such place(s)
as Lender shall reasonably designate, segregating all Collateral so that each
item is capable of identification; and
(b) Subject to the rights of any lessor, permit Lender, by Lender's
officers, employees, agents and representatives, to enter any premises where
any Collateral is located, to take possession of the Collateral, to complete
the processing, manufacture or repair of any Collateral, and to remove the
Collateral, or to conduct any public or private sale of the Collateral, all
without any liability of Lender for rent or other compensation for the use of
Borrower's premises.
ARTICLE 8 - SPECIAL COLLATERAL PROVISIONS
8.1 COMPROMISE AND COLLECTION. Borrower and Lender recognize that
setoffs, counterclaims, defenses and other claims may be asserted by obligors
with respect to certain of the Rights to Payment, that certain of the Rights to
Payment may be or become uncollectible in whole or in part; and that the
expense and probability of success of litigating a disputed Right to Payment
may exceed the amount that reasonably may be expected to be recovered with
respect to such Right to Payment. Borrower hereby authorizes Lender, after and
during the continuance of an Event of Default, to compromise with the obligor,
accept in full payment of any Right to Payment such amount as Lender shall
negotiate with the obligor, or abandon any Right to Payment. Any such action by
Lender shall be considered commercially reasonable so long as Lender acts in
good faith based on information known to it at the time it takes any such
action.
8.2 PERFORMANCE OF BORROWER'S OBLIGATIONS. Without having any obligation
to do so, upon reasonable prior notice to Borrower, Lender may perform or pay
any obligation which Borrower has agreed to perform or pay under this
Agreement, including, without limitation, the payment or discharge of taxes or
Liens levied or placed on or threatened against the Collateral. In so
performing or paying, Lender shall determine the action to be taken and the
amount necessary to discharge such obligations. Borrower shall reimburse Lender
on demand for any amounts paid by Lender pursuant to this Section, which
amounts shall constitute Obligations secured by the Collateral and shall bear
interest from the date of demand at the Default Rate.
8.3 POWER OF ATTORNEY. For the purpose of protecting and preserving the
Collateral and Lender's rights under this Agreement, Borrower hereby irrevocably
appoints Lender, with full power of substitution, as its attorney-in-fact with
full power and authority, after the occurrence and during the continuance of an
Event of Default, to do any act which Borrower is obligated to do hereunder; to
exercise such rights with respect to the Collateral as Borrower might exercise;
to use such Inventory, Equipment, Fixtures or other property as Borrower might
use; to enter Borrower's premises; to give notice of Lender's security interest
in, and to collect the Collateral; and to execute and file in Borrower's name
any financing statements, amendments and continuation statements necessary or
desirable to perfect or continue the perfection of Lender's security interests
in the Collateral. Borrower hereby ratifies all
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that Lender shall lawfully do or cause to be done by virtue of this appointment.
8.4 AUTHORIZATION FOR LENDER TO TAKE CERTAIN ACTION. The power of attorney
created in Section 8.3 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Lender hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon Lender to
exercise such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and in no event
shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Borrower for any act or failure to act, except
for gross negligence or willful misconduct. After the occurrence and during the
continuance of an Event of Default, Lender may exercise this power of attorney
without notice to or assent of Borrower, in the name of Borrower, or in Lender's
own name, from time to time in Lender's sole discretion and at Borrower's
expense. To further carry out the terms of this Agreement, after the occurrence
and during the continuance of an Event of Default, Lender may:
(a) Execute any statements or documents or take possession of, and
endorse and collect and receive delivery or payment of, any checks, drafts,
notes, acceptances or other instruments and documents constituting Collateral,
or constituting the payment of amounts due and to become due or any performance
to be rendered with respect to the Collateral.
(b) Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements
under any commercial or standby letter of credit relating to Collateral;
assignments, verifications and notices in connection with Accounts; or any other
documents relating to the Collateral, including without limitation the Records.
(c) Use or operate Collateral or any other property of Borrower for
the purpose of preserving or liquidating Collateral.
(d) File any claim or take any other action or proceeding in any
court of law or equity or as otherwise deemed appropriate by Lender for the
purpose of collecting any and all monies due or securing any performance to be
rendered with respect to the Collateral.
(e) Commence, prosecute or defend any suits, actions or proceedings
or as otherwise deemed appropriate by Lender for the purpose of protecting or
collecting the Collateral. In furtherance of this right, upon the occurrence
and during the continuance of an Event of Default, Lender may apply for the
appointment of a receiver or similar official to operate Borrower's business.
(f) Prepare, adjust, execute, deliver and receive payment under
insurance claims, and collect and receive payment of and endorse any instrument
in payment of loss or returned premiums or any other insurance refund or
return, and apply such amounts at Lender's sole discretion, toward repayment of
the Obligations or replacement of the Collateral.
8.5 APPLICATION OF PROCEEDS. Any Proceeds and other monies or property
received by Lender pursuant to the terms of this Agreement or any Loan Document
may be applied by Lender first to the payment of expenses of collection,
including without limitation reasonable attorneys' fees, and then to the
payment of the Obligations in such order of application as Lender may elect.
8.6 DEFICIENCY. If the Proceeds of any disposition of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Obligations, plus all other sums required to be expended or
distributed by Lender, then Borrower shall be liable for any such deficiency.
8.7 LENDER TRANSFER. Upon the transfer of all or any part of the
Obligations, Lender may transfer all or part of the Collateral and shall be
fully discharged thereafter from all liability and responsibility with respect
to such Collateral so transferred, and the transferee shall be vested with all
the rights and powers of Lender hereunder with respect to such Collateral so
transferred, but with respect to any Collateral not so transferred, Lender
shall retain all rights and powers hereby given.
8.8 LENDER'S DUTIES. Lender shall use reasonable care in the custody and
preservation of any Collateral in its possession. Without limitation on other
conduct which may be considered the exercise of reasonable care. Lender shall
be deemed to have exercised reasonable care in the custody and preservation of
such Collateral if such Collateral is accorded treatment substantially equal to
that which Lender accords its own property. It being understood that Lender
shall not have any responsibility for ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, declining value, tenders
or other matters relative to any Collateral, regardless of whether Lender has
or is deemed to have knowledge of such matters; or taking any necessary
13
steps to preserve any rights against any Person with respect to any Collateral.
Under no circumstances shall Lender be responsible for any injury or loss to
the Collateral, or any part thereof, arising from any cause beyond the
reasonable control of Lender.
8.9 TERMINATION OF SECURITY INTERESTS. Upon the payment in full of the
Obligations and if Lender has no further obligations under its Commitment, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Borrower. Upon any such termination, the Lender
shall, at Borrower's expense, execute and deliver to Borrower such documents as
Borrower shall reasonably request to evidence such termination.
ARTICLE 9 - GENERAL PROVISIONS
9.1 NOTICES. Any notice given by any party under any Loan Document shall
be in writing and personally delivered, sent by overnight courier, or United
States mail, postage prepaid, or sent by facsimile or other authenticated
message, charges prepaid, to the other party's or parties' addresses shown on
the Supplement. Each party may change the address or facsimile number to which
notices, requests and other communications are to be sent by giving written
notice of such change to each other party. Notice given by hand delivery shall
be deemed received on the date delivered; if sent by overnight courier, on the
next business day after delivery to the courier service; if by first class
mail, on the third business day after deposit in the U.S. Mail; and if by
facsimile, on the date of transmission.
9.2 BINDING EFFECT. The Loan Documents shall be binding upon and inure
to the benefit of Borrower and Lender and their respective successors and
assigns; provided, however, that Borrower may not assign or transfer Borrower's
rights or obligations under any Loan Document without Lender's prior written
consent. Lender reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Lender's rights
and obligations under the Loan Documents. In connection with any of the
foregoing, Lender may disclose all documents and information which Lender now
or hereafter may have relating to the Loans, Borrower, or its business;
provided that any person who receives such information shall have agreed in
writing in advance to maintain the confidentiality of such information on terms
reasonably acceptable to Borrower.
9.3 NO WAIVER. Any waiver, consent or approval by Lender of any Event of
Default or breach of any provision, condition, or covenant of any Loan Document
must be in writing and shall be effective only to the extent set forth in
writing. No waiver of any breach or default shall be deemed a waiver of any
later breach or default of the same or any other provision of any Loan
Document. No failure or delay on the part of Lender in exercising any power,
right, or privilege under any Loan Document shall operate as a waiver thereof,
and no single or partial exercise of any such power, right, or privilege shall
preclude any further exercise thereof or the exercise of any other power, right
or privilege. Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after default,
and such acceptance shall not constitute a waiver of said default or an
extension of the Maturity Date unless Lender agrees otherwise in writing.
9.4 RIGHTS CUMULATIVE. All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
9.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan Document
executed by Borrower which is prohibited or unenforceable in any jurisdiction,
shall be so only as to such jurisdiction and only to the extent of such
prohibition or unenforceability, but all the remaining provisions of any such
Loan Document shall remain valid and enforceable.
9.6 ACCOUNTING TERMS. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined
and prepared in accordance with GAAP.
9.7 INDEMNIFICATION; EXCULPATION. Borrower shall pay and protect, defend
and indemnify Lender and Lender's employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Lender,
collectively "Agents") against, and hold Lender and each such Agent harmless
from, all claims, actions, proceedings, liabilities, damages, losses, expenses
(including, without limitation, attorneys' fees and costs) and other amounts
incurred by Lender and each such Agent, arising from (i) the matters
contemplated by this Agreement or any other Loan Documents or (ii) any
contention that Borrower has failed to comply with any law, rule, regulation,
order or directive applicable to Borrower's business; provided, however, that
this indemnification shall not apply to any of the foregoing incurred solely as
the result of Lender's or any Agent's gross negligence or willful misconduct.
This
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indemnification shall survive the payment and satisfaction of all of Borrower's
Obligations to Lender.
9.8 REIMBURSEMENT. In any action or proceeding between Borrower and
Lender arising out of the Loan Documents, the prevailing party will be entitled
to recover its reasonable attorneys' fees and other costs and expenses
incurred, in addition to any other relief to which it may be entitled.
9.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts which, when taken together, shall constitute but one
agreement.
9.10 ENTIRE AGREEMENT. The Loan Documents are intended by the parties as
the final expression of their agreement and therefore contain the entire
agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by Borrower and Lender.
9.11 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF
THOSE COURTS. EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY CALIFORNIA LAW.
9.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE, BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING. THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT
TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
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9.13 CONFIDENTIAL INFORMATION. Lender agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
information relating to Borrower which have been identified as "confidential" by
Borrower, and neither Lender nor any of its Affiliates shall use any such
information for any purpose or in any manner other than pursuant to the terms
contemplated by this Loan Agreement; except to the extent such information (i)
was or becomes generally available to the public other than as a result of a
disclosure by Lender, or (ii) was or becomes available on a non-confidential
basis from a source other than Borrower, provided that such source is not bound
by a confidentiality agreement with Borrower known to Lender; provided further,
however that any Lender may disclose such information (A) at the request or
pursuant to any requirement of any governmental authority to which Lender is
subject or in connection with an examination of such Lender by any such
authority, (B) pursuant to subpoena or other court process, (C) when required to
do so in accordance with the provisions of any applicable law, (D) to Lender's
independent auditors and other professional advisors, and (E) to any person or
entity and in any proceeding necessary in Lender's judgment to protect such
Lender's interests in connection with any claim or dispute involving Lender (F)
when approved in writing by Borrower. Notwithstanding the foregoing, Borrower
authorizes Lender to disclose to any participant or assignee (each, a
"Transferee"), to any prospective Transferee and to any Affiliate, such
financial and other information in Lender's possession concerning Borrower which
has been delivered to Lender pursuant to this Loan Agreement, provided that,
unless otherwise agreed by Borrower, the Transferee agrees in writing to such
Lender to keep such information confidential to the same extent required of
Lender hereunder.
ARTICLE 10 - DEFINITIONS
The definitions appearing in this Agreement or any Supplement shall be
applicable to both the singular and plural forms of the defined terms:
"ACCOUNT" means a right to payment for goods sold or leased by Borrower or for
services rendered by Borrower, which right is not evidenced by an instrument or
chattel paper, whether or not earned by performance.
"AFFILIATE" means any Person which directly or indirectly controls, is
controlled by, or is under common control with Borrower. "Control," "controlled
by" and "under common control with" mean direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise); provided,
that control shall be conclusively presumed when any Person or affiliated group
directly or indirectly owns fifty percent (50%) or more of the securities having
ordinary voting power for the election of directors of a corporation.
"AGREEMENT" means this Loan and Security Agreement and each Supplement thereto,
as each may be amended or supplemented from time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
Section 101. et seq.), as amended
"BASIC INTEREST" means the fixed rate of interest payable on the outstanding
balance of each Loan at the applicable Designated Rate.
"BORROWING DATE" means the Business Day on which the proceeds of a Loan are
disbursed by Lender.
"BORROWING REQUEST" means a written request from Borrower in substantially the
form of Exhibit "B" to the Supplement, requesting the funding of one or more
Loans on a particular Borrowing Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which
commercial banks in New York City or San Francisco are authorized or required by
law to close.
"CLOSING DATE" means the date of this Agreement.
"COLLATERAL" means all Borrower's Accounts, Deposit Accounts, Equipment,
Fixtures, General Intangibles, Goods, Inventory, Rights to Payment, and
securities now owned or hereafter acquired or arising, wherever located, and
whether held by Borrower or any third party, and all royalties, proceeds and
products thereof, including all insurance and condemnation proceeds
("Proceeds"), and all monies now or at any time hereafter in the possession or
under the control of Lender or a bailee or affiliate of Lender, including any
cash collateral in any cash collateral or other account, and all Records.
"COMMITMENT" means the obligation of Lender to make Loans to Borrower up to the
aggregate principal amount set forth in the Supplement.
"DEFAULT" means an event which with the giving of notice, passage of time, or
both would constitute an Event of Default.
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"DEFAULT RATE" is defined in Section 2.7.
"DEPOSIT ACCOUNTS" means all Borrower's demand, time, savings, passbook or
similar accounts maintained with a financial institution or credit union.
"DESIGNATED RATE" means the rate of interest per annum described in the
Supplement as being applicable to an outstanding Loan from time to time.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, in each case
relating to environmental, health, or safety matters.
"EQUIPMENT" means all of Borrower's equipment now owned or hereafter acquired,
including but not limited to machinery, machine parts, furniture, furnishings
and all tangible personal property used in the business of Borrower and all
such property which is or is to become fixtures on real property, and all
improvements, replacements, accessions and additions thereto, wherever located,
and all proceeds thereof arising from the sale, lease, rental or other use or
disposition of any such property, including all rights to payment with respect
to insurance or condemnation, returned premiums, or any cause of action
relating to any of the foregoing.
"EVENT OF DEFAULT" means any event described in Section 7.1.
"FIXTURES" means all items of personal property of Borrower that are so related
to the real property upon which they are located that an interest in them
arises under real property law, and improvements, replacements, parts,
accessions and additions thereto, and substitutions therefor.
"GAAP" means generally accepted accounting principles and practices consistent
with those principles and practices promulgated or adopted by the Financial
Accounting Standards Board and the Board of the American Institute of Certified
Public Accountants, their respective predecessors and successors. Each
accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.
"GENERAL INTANGIBLES" means all personal property of Borrower, other than
Goods, not otherwise defined as Collateral, including without limitation all
interests or claims in insurance policies; literary property; trade names,
trade name rights; Trademarks, Trademark rights, copyrights, Patents, and all
applications therefor; licenses, permits, franchises and like privileges or
rights issued by any governmental or regulatory authority; income tax refunds;
customer lists; claims and causes of action (whether in contract, tort or
otherwise), judgments and all guaranty claims, leasehold interests in personal
property, security interests or other security held by or guaranteed to the
Borrower to secure the payment by an account debtor of any of the Accounts.
"GOODS" means all money and other personal property of Borrower, other than
General Intangibles, not otherwise defined as Collateral.
"INDEBTEDNESS" of any Person means at any date, without duplication and without
regard to whether matured or unmatured, absolute or contingent: (i) all
obligations of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments;
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (iv) all obligations of such Person as lessee under capital
leases; (v) all obligations of such Person to reimburse or prepay any bank or
other Person in respect of amounts paid under a letter of credit, banker's
acceptance, or similar instrument, whether drawn or undrawn; (vi) all
obligations of such Person to purchase securities which arise out of or in
connection with the sale of the same or substantially similar securities; (vii)
all obligations to repurchase assets previously sold (including any obligation
to repurchase any accounts or chattel paper under any factoring, receivables
purchase, or similar arrangement); (viii) obligations of such Person under
interest rate swap, cap, collar or similar hedging arrangements; and (ix) all
obligations of others of any type described in clause (i) through clause (viii)
above guaranteed by such Person.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before any
court or other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar arrangement
in respect of its creditors generally or any substantial portion of its
creditors, undertaken under U.S. Federal, state or foreign law, including
the Bankruptcy Code.
17
"INVENTORY" means all Borrower's raw materials, advertising, packaging and
shipping materials, work in process, finished goods and goods held for sale or
lease or furnished under contracts of service, and all returned and repossessed
goods, and all goods covered by documents of title, including warehouse
receipts, bills of lading and all other documents of every type covering all or
any part of the Collateral.
"LIEN" means any voluntary or involuntary security interest, mortgage, pledge,
claim, charge, encumbrance, title retention agreement, or third party interest,
covering all or any part of the property of Borrower or any other Person.
"LOAN" means an extension of credit by Lender under Section 2 of this Agreement.
"LOAN DOCUMENTS" means, individually and collectively, this Loan and
Security Agreement, each Supplement, each Note, and any other security or pledge
agreement(s), any Warrants issued by Borrower in connection with this Agreement,
and all other contracts, instruments, addenda and documents executed in
connection with this Agreement or the extensions of credit which are the
subject of this Agreement.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means (a) a material
adverse change in, or a material adverse effect upon, the operations, business,
properties, or condition (financial or otherwise) of Borrower; (b) a material
impairment of the ability of Borrower to perform under any Loan Document; or
(c) a material adverse effect upon the legality, validity, binding effect or
enforceability against Borrower of any Loan Document.
"MATURITY DATE" means, with regard to a Loan, the earlier of (i) its maturity
by reason of acceleration, or (ii) its stated maturity date; and is the date
on which payment of all outstanding principal, accrued interest, and the
Terminal Payment with respect to such Loan is due.
"NOTE" means a promissory note substantially in the form attached to the
Supplement as Exhibit "A", executed by Borrower evidencing each Loan.
"OBLIGATIONS" means all debts, obligations and liabilities of Borrower to Lender
currently existing or now or hereafter made, incurred or created under,
pursuant to or in connection with this Agreement, whether voluntary or
involuntary and however arising or evidenced, whether direct or acquired by
Lender by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Borrower may be liable individually or jointly, or whether recovery upon such
debt may be or become barred by any statute of limitations or otherwise
unenforceable; and all renewals, extensions and modifications thereof; and all
attorneys' fees and costs incurred by Lender in connection with the collection
and enforcement thereof as provided for in any Loan Document.
"PATENT LICENSE" means any written agreement now or hereafter in existence
granting to Borrower any right to make, use, sell or practice any invention on
which a Patent is in existence.
"PATENTS" means all of the following: (i) all letters patent of the United
States or any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including without limitation, registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any state thereof or any other country or any political
subdivision thereof, and (ii) all reissues, divisions, continuations,
continuations-in-part, renewals or extensions thereof.
"GRANT OF SECURITY INTEREST IN PATENTS" means any Patent Collateral Assignment
executed and delivered by Borrower in favor of Lender, as the same may be
amended from time to time.
"PERMITTED LIEN" means
(a) Involuntary Liens which, in the aggregate, would not have a Material
Adverse Effect and which in any event would not exceed the Threshold Amount;
(b) Liens for current taxes or other governmental or regulatory
assessments which are not delinquent, or which are contested in good faith by
the appropriate procedures and for which appropriate reserves are maintained;
(c) security interests on any property held or acquired by Borrower in the
ordinary course of business securing Indebtedness incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such property;
provided, that such Lien attaches solely to the property acquired with such
Indebtedness and that the principal amount of such Indebtedness does not exceed
one hundred percent (100%) of the cost of such property; and further provided,
that such property is not equipment with respect to which a Loan has been made
hereunder.
18
(d) Liens in favor of Lender,
(e) bankers' liens, rights of setoff and similar Liens incurred on
deposits made in the ordinary course of business;
(f) materialmen's, mechanics', repairmen's, employees' or other like Liens
arising in the ordinary course of business and which are not delinquent for more
than 45 days or are being contested in good faith by appropriate proceedings;
(g) any judgment, attachment or similar Lien, unless the judgment it
secures has not been discharged or execution thereof effectively stayed and
bonded against pending appeal within 30 days of the entry thereof;
(h) licenses or sublicenses of Patents, Patent Licenses, Trademarks or
Trademark Licenses permitted under the Trademark Collateral Assignment or the
Patent Collateral Assignment;
(i) Liens which have been approved by Lender in writing prior to the
Closing Date;
(j) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business not interfering in any material respect
with the business of Borrower, and any interest or title of a lessor, licensor
or under any lease or license;
(k) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payments of customs duties in connection with the importation
of goods;
(l) Deposits under worker's compensation, unemployment insurance, social
security and other similar laws, or to secure the performance of bids, tenders
or contracts (other than for the repayment of borrowed money) or to secure
indemnity, performance or other similar bonds for the performance of bids,
tenders or contracts (other than for the repayment of borrowed money) or to
secure statutory obligations (other than liens arising under ERISA or
environmental liens) or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business.
"PERSON" means any individual or entity.
"QUALIFIED PUBLIC OFFERING" means the closing of a firmly underwritten public
offering of Borrower's common stock with aggregate proceeds of not less than
$20,000,000 (prior to underwriting expenses and commissions).
"RECORDS" means all Borrower's computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Borrower's business.
"RELATED PERSON" means any Affiliate of Borrower of any officer, employee,
director or equity security holder of Borrower or any Affiliate.
"RIGHTS TO PAYMENT" means all Borrower's accounts, instruments, contract
rights, documents, chattel paper and all other rights to payment, including,
without limitation, the Accounts, all negotiable certificates of deposit and
all rights to payment under any Patent License, any Trademark License, or any
commercial or standby letter of credit.
"TERMINAL PAYMENT" means, with respect to each Loan, an amount payable on the
Maturity Date of such Loan in an amount equal to that percentage of the
original principal amount of such Loan specified in the Supplement.
"TERMINATION DATE" has the meaning specified in the Supplement.
"THRESHOLD AMOUNT" has the meaning specified in the Supplement.
"TRADEMARK LICENSE" means any written agreement now or hereafter in existence
granting to Borrower any right to use any Trademark.
"TRADEMARKS" means all of the following: (i) all trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, other source or business identifiers, prints and
labels on which any of the foregoing have appeared or will appear, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any state thereof or any other
country or any political subdivision thereof, and (ii) all reissues, divisions,
continuations, continuations-in-part, renewals or extensions thereof.
19
"GRANT OF SECURITY INTEREST IN TRADEMARK" means any Trademark Collateral
Assignment executed and delivered by Borrower in favor of Lender, as the same
may be amended from time to time.
"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.
20
SUPPLEMENT
TO THE
LOAN AND SECURITY AGREEMENT
DATED AS OF SEPTEMBER 21, 1998
BETWEEN
COSINE COMMUNICATIONS, INC. ("BORROWER")
AND
VENTURE LENDING & LEASING II, INC. ("LENDER")
--------------------------------------------------------------------------------
This is a Supplement identified in the document entitled Loan and Security
Agreement dated as of September 21, 1998 between Borrower and Lender. All
capitalized terms used in this Supplement and not otherwise defined in this
Supplement have the meanings ascribed to them in Section 10 of the Loan and
Security Agreement, which is incorporated in its entirety into this Supplement.
In the event of any inconsistency between the provisions of that document and
this Supplement, this Supplement is controlling. Execution of this Supplement
by the Lender and Borrower shall constitute execution of the Loan and Security
Agreement.
In addition to the provisions of the Loan and Security Agreement, the
parties agree as follows:
PART 1 - ADDITIONAL DEFINITIONS:
"COMMITMENT": Lender commits to make Loans to Borrower (either as
Equipment Loans or Term Loans) up to the aggregate, original principal amount
of Two Million Dollars ($2,000,000.00). Subject to the limitations set forth in
this Supplement and the Loan and Security Agreement, a Loan may be advanced as
an Equipment Loan, the proceeds of which shall be used to finance Borrower's
acquisition or carrying of computer, research and development and general
purpose office equipment, and software imbedded in or necessary to the use or
operation of such equipment, or for tenant improvements at premises leased by
Borrower. A Loan may also be advanced as a Term Loan, the proceeds of which
shall be used by Borrower for general working capital purposes. Except to the
extent the remaining Commitment is a lesser amount, each Equipment Loan
requested by Borrower to be made on a single Business Day shall be for a minimum
principal amount of $50,000, and each Term Loan requested by Borrower to be
made on a single Business Day shall be for a minimum principal amount of
$250,000 or a multiple thereof.
"DESIGNATED RATE": The Designated Rate is fixed rate of interest per annum
of (i) seven and one-half percent (7.50%) for each Equipment Loan, and (ii)
seven and three-eighths percent (7.375%) for each Term Loan.
"EQUIPMENT LOAN" means any Loan requested by Borrower and funded by Lender
to finance Borrower's acquisition or carrying of specific items of Equipment,
software or tenant improvements.
"TERM LOAN" means any Loan requested by Borrower and funded by Lender for
general working capital purposes of Borrower, and not to finance the
acquisition or carrying of specific items of Equipment, software or tenant
improvements.
"TERMINAL PAYMENT": Each Terminal Payment shall be an amount equal to (i)
ten percent (10%) of the original principal amount of the associated Equipment
Loan, or (ii) seven and one-half percent (7.50%) of the original principal
amount of the associated Term Loan.
"TERMINATION DATE": The Termination Date is the earlier of (a) the date
Lender may terminate making Loans or extending other credit pursuant to the
rights of Lender under Article 7 of the Agreement, or (b) June 30, 1999.
"THRESHOLD AMOUNT": One Hundred Thousand Dollars ($100,000.00).
21
PART 2 - ADDITIONAL COVENANTS AND CONDITIONS:
ISSUANCE OF WARRANT TO LENDER. As additional consideration for the
making of the Loans under the Loan and Security Agreement, upon the making of,
and as a condition to, the initial Loan, Lender shall be entitled to receive a
warrant to purchase a number of shares of Series B Preferred Stock of Borrower
("Warrant Shares") with an aggregate initial exercise price of $50,000
determined on the basis of the per share price of such preferred stock in the
next round of equity financing after the Closing Date; provided that if no such
equity financing has occurred by June 30, 1999, then the initial per share
exercise price shall be $8.00 (pre 4 for 1 split). The warrant shall vest for
additional shares with a value equal to 5% of any fundings under the Equipment
facility in excess of $1,000,000 and 10% of any fundings under the Working
Capital facility. The warrant issued under this Agreement shall be substantially
the form attached hereto as Exhibit "C"; shall be transferable by Lender,
subject to compliance with applicable securities laws; shall expire on June 30,
2006; and shall include piggy-back registration rights, "net issuance"
provisions, and anti-dilution protections reasonably satisfactory to Lender and
its counsel.
COMPLETION OF DUE DILIGENCE; DISPOSITION OF COMMITMENT FEE. As an
additional condition precedent under Section 4.1 of the Loan and Security
Agreement, Lender shall have completed to its satisfaction its due diligence
review of Borrower's business and financial condition and prospects, and
Lender's credit committee shall have approved the Commitment. If this condition
is not satisfied, Lender shall refund to Borrower the $10,000 commitment fee
previously paid to Lender. Lender agrees that with respect to each Loan
advanced, on the Borrowing Date applicable to such Loan, Lender shall credit
against the payments due from Borrower on such date in respect of such Loan an
amount equal to the product of $10,000 and a fraction the numerator of which is
the principal amount of such Loan and the denominator of which is $1,000,000,
until the aggregate amount of such credits equals but does not exceed $10,000.
CONDITION TO ADVANCES OF TERM LOANS. The funding of any Term Loan
shall be at the sole and absolute discretion of Lender based on Lender's
assessment at the time of (i) Borrower's ratio of assets to liabilities and
such other financial ratios as Lender determines appropriate, or (ii) the
amount of equity capital raised by or committed to Borrower or the status of
any corporate partnering arrangements or strategic alliances with third parties.
LIMITATION ON EQUIPMENT LOANS. Each Equipment Loan shall be in an
amount not to exceed one hundred percent (100%) of the amount paid or payable
by Borrower to a non-affiliated manufacturer, vendor or dealer for an item of
equipment as shown on an invoice therefor (excluding any commissions and any
portion of the payment which relates to the servicing of the equipment and
sales tax payable by Borrower upon acquisition, and delivery charges);
provided, however, that with respect to any item of Equipment which has either
been owned by Borrower or in service for more than six (6) months as of the
proposed Borrowing Date of the associated Equipment Loan. Lender shall not
advance against such Equipment more than 100% of its book value. Lender
reserves the right to approve each item of Equipment, Software and any tenant
improvements proposed by Borrower to be financed with proceeds of an Equipment
Loan.
AGREEMENT TO SUBORDINATE LIENS. Lender acknowledges that Borrower is
currently indebted to Silicon Valley Bank, and that such indebtedness is secured
by Lien in favor of Silicon Valley Bank on certain assets of Borrower which
constitute Collateral. It is understood and agreed that the lien of Lender in
all items of Equipment financed with the proceeds of Equipment Loans will be a
first priority, perfected Lien, and that such items of Equipment shall be
subject to no other Liens other than Permitted Liens. Lender agrees that its
Lien on any other items of Collateral in which Silicon Valley Bank has a Lien to
secure indebtedness under it's $1.0 million 90 day bridge facility expiring
XX/XX/1998 will be subordinate in priority of perfection to the Lien of Silicon
Valley Bank. It is further understood and agreed that the lien of Silicon Valley
Bank in all items of Equipment financed with the proceeds of $1.2 million
equipment financing will be a first priority, perfected Lien on the items
financed by that facility. Borrower will cooperate with Lender in obtaining
releases of any Liens of Silicon Valley Bank or third parties against Equipment
proposed to be financed with the proceeds of an Equipment Loan.
LIMITATION ON REIMBURSEMENT OF DOCUMENTATION COSTS. Borrower shall
reimburse Lender for all costs and expenses, including without limitation
reasonable attorney's fees and disbursements expended or incurred by Lender in
connection with (a) the preparation and negotiation of the Loan Documents,
limited to $3,000 which will be deducted from the first funding, (b) the
amendment and enforcement of the Loan Documents, including without
2
22
limitation during any workout, attempted workout, and/or in connection with the
rendering of legal advice as to Lender's rights, remedies and obligations under
the Loan Documents, (c) collecting any sum which becomes due Lender under any
Loan Document.
PART 3 - ADDITIONAL REPRESENTATIONS:
Borrower represents and warrants that as of the Closing Date and each
Borrowing Date:
- Its chief executive office is located at: 0000 Xxxxx Xxxxxx,
Xxxxxxx, XX 00000
- Its Equipment is located at: 0000 Xxxxx Xxxxxx, Xxxxxxx, XX, and
- 0000 Xxxxxx Xxxxxxx, Xxxxxxx Xxxx, XX.
- Its Records are located at: 0000 Xxxxxx Xxxxxxx, Xxxxxxx Xxxx, XX.
- In addition to its chief executive office, Borrower maintains
offices or operates its business at the following locations:
- Other than its full corporate name, Debtor has conducted business
using the following trade names or fictitious business names:
PART 4 - ADDITIONAL LOAN DOCUMENTS:
Form of Note Exhibit "A"
Form of Borrowing Request Exhibit "B"
Form of Compliance Certificate Exhibit "C"
Form of Grant of Security Interest in Patents Exhibit "D"
Form of Grant of Security Interest in Trademark Exhibit "E"
Form of Warrant Exhibit "F"
3
23
IN WITNESS WHEREOF, the parties have executed this Supplement as of the
date first above written.
BORROWER:
COSINE COMMUNICATIONS, INC.
By: /s/ Xxxxxx Xxxxxxx
Name: Xxxxxx Xxxxxxx
Title: CFO
Address for Notices: Attn: Chief Financial Officer
0000 Xxxxxx Xxxxxxx
Xxxxxxx Xxxx, XX 00000
Fax # (000) 000-0000
LENDER:
VENTURE LENDING & LEASING II, INC.
By: /s/ Xxxxxxxx X. Xxxxxxxxx
Name: Xxxxxxxx X. Xxxxxxxxx
Title: President
Address for Notices: Attn: Chief Financial Officer
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Fax # (000) 000-0000
4
24
EXHIBIT "A"
[Note No. X-XXX]
FORM OF PROMISSORY NOTE
[EQUIPMENT LOAN] [TERM LOAN]
$ ________________ _______________, 000__
Xxx Xxxx, Xxxxxxxxxx
The undersigned ("Borrower") promises to pay to the order of VENTURE
LENDING & LEASING II, INC., a Maryland corporation ("Lender"), at its office at
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000, Xxx Xxxx, Xxxxxxxxxx 00000, or at such
other place as Lender may designate in writing, in lawful money of the United
States of America, the principal sum of __________________________ Dollars
($_______), with Basic Interest thereon from the date hereof until maturity,
whether scheduled or accelerated, at a fixed rate per annum of _______________
percent (____%) [7.50% FOR EQUIPMENT LOAN, OR 7.375% FOR TERM LOAN], and a
Terminal Payment in the sum of [10% OF FACE AMOUNT OF EQUIPMENT LOAN, OR 7.50%
IF A TERM LOAN] Dollars ($__________) payable on the Maturity Date.
This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan and Security Agreement dated as of September ___, 1998,
between Borrower and Lender. Each capitalized term not otherwise defined herein
shall have the meaning set forth in the Loan Agreement. The Loan Agreement
contains provisions for the acceleration of the maturity of this Note upon the
happening of certain stated events.
Principal of and interest on this Note shall be payable as follows:
On the Borrowing Date, Borrower shall pay (i) Basic Interest, in advance,
on the outstanding principal balance of this Note at the Designated Rate for
the period from the Borrowing Date through [THE LAST DAY OF THE SAME MONTH];
and (ii) a first (1st) amortization installment of principal and Basic Interest
in the amount of _______________, in advance for the month of [FIRST FULL MONTH
AFTER BORROWING DATE] and (iii) a [42ND IF AN EQUIPMENT LOAN, OR 30TH IF A TERM
LOAN] amortization installment of principal and Basic Interest in the amount of
$____________, in advance for the month of [DATE OF LAST REGULAR AMORTIZATION
PAYMENT].
Commencing on the first day of the second full month after the Borrowing
Date, and continuing on the first day of each consecutive month thereafter,
principal and Basic Interest shall be payable, in advance, in [39 OR 27, AS
APPROPRIATE] equal consecutive installments of _______________________ Dollars
($__________) each, with a [40TH OR 28TH, AS APPROPRIATE] installment equal to
the entire unpaid principal balance and accrued Basic Interest on _____________,
200__. The Terminal Payment amount shall be payable on [ONE MONTH LATER], 200__.
Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated, at
a rate per annum equal to the Default Rate. Borrower shall pay such interest
on demand.
25
Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.
If Borrower is late in making any payment under this Note by more than
five (5) days, Borrower agrees to pay a "late charge" of five percent (5%) of
the installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose
of defraying the expenses incidental to the handling of such delinquent
amounts. Borrower acknowledges that such late charge represents a reasonable sum
considering all of the circumstances existing on the date of this Note and
represents a fair and reasonable estimate of the costs that will be sustained
by Lender due to the failure of Borrower to make timely payments. Borrower
further agrees that proof of actual damages would be costly and inconvenient.
Such late charge shall be paid without prejudice to the right of Lender to
collect any other amounts provided to paid or to declare a default under this
Note or any of the other Loan Documents or from exercising any other rights and
remedies of Lender.
This Note shall be governed by, and construed in accordance with, the laws
of the State of California.
CoSINE COMMUNICATIONS, INC.
By:____________________________
Name:__________________________
Its:___________________________
26
EXHIBIT "B"
FORM OF BORROWING REQUEST
[Date]
Venture Lending & Leasing II, Inc.
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Re: [Borrower]
Gentlemen:
Reference is made to the Loan and Security Agreement dated as of
September , 1998 (as amended from time to time, the "Loan Agreement", the
capitalized terms used herein as defined therein), between Venture Lending &
Leasing II, Inc. ("VLLI") and CoSine Communications, Inc. (the "Company").
The undersigned is the ______________________ of the Company, and
hereby requests on behalf of the Company a Loan under the Loan Agreement, and
in that connection certifies as follows:
1. The type of the proposed Loan is [an Equipment Loan] [a Term
Loan]. The amount of the proposed Loan is _______________ and __/100 Dollars
($__________). The Borrowing Date of the proposed Loan is ____________, 199_.
[2. The proceeds of the proposed Equipment Loan shall be used by the
Company to acquire new [and to finance used] items of Equipment [and software
and/or tenant improvements] described more particularly on Schedule I hereto,
and on invoices and other documentation furnished to you with this Borrowing
Request. As of the date hereof, the items of Equipment proposed to be financed
with proceeds of the Equipment Loan are not subject to any third party Lien,
and Lender shall have a first priority security interest in such Equipment as
required under the Loan Agreement.]
3. As of this date, no Default or Event of Default has occurred and
is continuing, or will result from the making of the proposed Loan, the
representations and warranties of the Company contained in Article 3 of the
Loan Agreement are true and correct, and the conditions precedent described in
Article 4 of the Loan Agreement have been met.
4. No Material Adverse Change has occurred since the date of the most
recent financial statements submitted to you by the Company.
[5. Any other applicable representations or conditions]
The Company shall notify you promptly before the funding of the Loan
if any of the matters to which I have certified above shall not be true and
correct on the Borrowing Date.
Very truly yours,
_____________________________________
Name: _______________________________
Title:_______________________________
27
EXHIBIT C
COMPLIANCE CERTIFICATE
Venture Lending & Leasing II, Inc.
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Re: ____________
Gentlemen:
Reference is made to the two Loan and Security Agreement dated as of
_______________ (as the same have been and may be amended from time to time, the
"Loan Agreement", the capitalized terms used herein as defined therein), between
Venture Lending & Leasing II, Inc., on one hand and _______________ (the
"Company") on the other.
The undersigned authorized representative of the Company hereby certifies
that in accordance with the terms and conditions of the Loan Agreement, the
Company is in complete compliance for the period ending _______________ of all
required conditions and terms except as noted below. Attached herewith are the
required documents supporting the above certification. The representative
further certifies that these are prepared in accordance with Generally Accepted
Accounting Principles and are consistent from one period to the next except as
explained below.
Indicate compliance status by circling Yes/No under "Complies"
REPORTING REQUIREMENT REQUIRED COMPLIES
Interim Financial Statements Monthly within 45 days YES/NO
Audited Financial Statements FYE within 90 days YES/NO
FINANCIAL COVENANTS REQUIRED COMPLIES
REQUIRED EXPLANATIONS:
_______________________________________________________________________________
_______________________________________________________________________________
Very Truly Yours,
By:__________________________
Name:________________________
Its:_________________________
28
EXHIBIT D
GRANT OF SECURITY INTEREST IN PATENTS
This Agreement is made as of September 21, 1998, between CoSine
Communications, Inc., a California corporation, having a mailing address at 0000
Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxx 00000 ("Debtor"), and Venture Lending &
Leasing II, Inc. ("Secured Party"). Secured Party's address is 0000 Xxxxx Xxxxx
Xxxxxx, Xxxxx 000, Xxx Xxxx, Xxxxxxxxxx 00000.
RECITALS
A. Debtor owns the Patents and Patent applications listed on Schedule 1
hereto, and is a party to the Patent Licenses listed on Schedule 1 hereto;
B. Debtor and Secured Party are parties to a Loan and Security Agreement
of even date herewith (as the same may be amended from time to time, the "Loan
Agreement");
C. Pursuant to the terms of the Loan Agreement, Debtor has granted to
Secured Party a security interest in certain personal property assets of Debtor,
including all right, title and interest of Debtor in, to and under all of
Debtor's Patents (as defined in the Loan Agreement), all of Debtor's Patent
applications and all of Debtor's Patent Licenses (as defined in the Loan
Agreement), whether presently existing or hereafter arising or acquired, and all
products and proceeds thereof, including, without limitation, any and all causes
of action which may exist by reason of infringement thereof for the full term of
the Patents, to secure the payment of the Obligations (as defined in the Loan
Agreement);
C. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the premises, Debtor hereby agrees with
Secured Party as follows:
1. To secure the complete and timely satisfaction of all
Indebtedness, Debtor hereby grants, to Secured Party a continuing security
interest in and lien on all of Debtor's entire right, title and interest in and
to the Patents, Patent applications and Patent Licenses listed on Schedule 1
hereto (as the same may be amended pursuant hereto from time to time),
including, without limitation, all proceeds thereof (such as, by way of example,
license royalties and proceeds of infringements, all rights corresponding
thereto throughout the world and all reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof (collectively called the
"Patents").
2. Debtor covenants and warrants that:
(a) The Patents are subsisting and have not been adjudged
invalid or unenforceable, in whole or in part;
29
(b) To the best of Debtor's knowledge, each of the Patents is
valid and enforceable and Debtor has notified Secured Party in writing of all
prior art (including public uses and sales) of which it is aware;
(c) Debtor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the Patents, free and
clear of any liens, charges and encumbrances, including, without limitation,
pledges, assignments, licenses, shop rights and covenants by Debtor not to xxx
third persons, except (i) Permitted Liens; and (ii) any license disclosed in
Schedule 1; and
(d) Debtor has the unqualified right to enter into this
Agreement and perform its terms.
3. Debtor agrees that, until all of the Obligations shall have been
satisfied in full, it will not enter into any agreement (for example, a license
agreement) which is inconsistent with Debtor's obligations under this
Agreement, without Secured Party's prior written consent; provided, that so
long as no Default or Event of Default shall have occurred and be continuing,
Debtor may grant licenses to third parties to use the Patents in the ordinary
course of business of both Debtor and such third party on arm's length and
customary business terms.
4. IF, BEFORE THE OBLIGATIONS SHALL HAVE BEEN SATISFIED IN FULL,
DEBTOR SHALL OBTAIN RIGHTS TO ANY NEW PATENTABLE INVENTIONS, OR BECOME ENTITLED
TO THE BENEFIT OF ANY PATENT APPLICATION OR PATENT FOR ANY REISSUE, DIVISION,
CONTINUATION, RENEWAL, EXTENSION, OR CONTINUATION-IN-PART OF ANY PATENT OR ANY
IMPROVEMENT ON ANY PATENT, THE PROVISIONS OF PARAGRAPH 1 SHALL AUTOMATICALLY
APPLY THERETO AND DEBTOR SHALL GIVE TO SECURED PARTY PROMPT NOTICE THEREOF IN
WRITING.
5. Debtor authorizes Secured Party unilaterally to modify this
Agreement by amending Schedule 1 to include any future Patents and Patent
applications which are Patents under paragraph 1 or 4 hereof.
6. If any Event of Default shall have occurred and be continuing,
Secured Party shall have, in addition to all other rights and remedies given it
by this Agreement or any other Loan Document, those allowed by law and the
rights and remedies of a secured party under the Uniform Commercial Code as
enacted in any jurisdiction in which the Patents may be located and, without
limiting the generality of the foregoing, Secured Party may immediately,
without demand of performance and without other notice (except as set forth
below) or demand whatsoever to Debtor, all of which are hereby expressly
waived, and without advertisement, sell at public or private sale or otherwise
realize upon, the whole or from time to time any part of the Patents, or any
interest which the Debtor may have therein, and after deducting from the
2
30
proceeds of sale or other disposition of the Patents all expenses (including
reasonable expenses for brokers' fees and legal services), shall apply the
residue of such proceeds toward the payment of the Indebtedness. Any remainder
of the proceeds after payment in full of the Obligations shall be paid over to
Debtor. Notice of any sale or other disposition of the Patents shall be given
to Debtor at least ten (10) days before the time of any intended public or
private sale or other disposition of the Patents is to be made, which Debtor
hereby agrees shall be reasonable notice of such sale or other disposition. At
any such sale or other disposition Secured Party may, to the extent permissible
under applicable law, purchase the whole or any part of the Patents sold, free
from any right of redemption on the part of Debtor, which right is hereby
waived and released.
7. Debtor hereby authorizes and empowers Secured Party to make,
constitute and appoint any officer or agent of Secured Party, as Secured Party
may select in its exclusive discretion, as Debtor's true and lawful
attorney-in-fact, with the power, after and during the continuance of an Event
of Default, to endorse Debtor's name on all applications, documents, papers and
instruments necessary for Secured Party to use the Patents, or to grant or
issue any exclusive or nonexclusive license under the Patents to any third
person, or necessary for Secured Party to assign, pledge, convey or otherwise
transfer title in or dispose of the Patents to any third person as a part of
Secured Party's realization on such collateral upon acceleration of the
Obligations following an Event of Default. Debtor hereby ratifies all that such
attorney shall lawfully do or cause to be done by virtue hereof. This power of
attorney being coupled with an interest shall be irrevocable for the life of
this Agreement.
8. At such time as Debtor shall completely satisfy all of the
Obligations this Agreement shall terminate and Secured Party shall execute and
deliver to Debtor all instruments as may be necessary or proper to release the
security interests granted herein, subject to any disposition thereof which may
have been made by Secured Party pursuant hereto.
9. Any and all fees, costs and expenses, of whatever kind or
nature, including the reasonable attorneys' fees and legal expenses incurred by
Secured Party in connection with the preparation of this Agreement and all
other documents relating hereto and the consummation of this transaction, the
filing or recording of any documents (including all taxes in connection
therewith) in public offices, the payment or discharge of any taxes, counsel
fees, maintenance fees, encumbrances or otherwise protecting, maintaining or
preserving the Patents, or in defending or prosecuting any actions or
proceedings arising out of or related to the Patents, shall be borne and paid
by Debtor on demand by Secured Party and until so paid shall be added to the
principal amount of the Obligations.
10. Debtor shall have the duty, to prosecute diligently any Patent
applications pending as of the date of this Agreement or thereafter until the
Obligations shall have been paid in full, to make application on unpatented but
patentable inventions and to preserve and maintain all rights in Patent
applications and Patents, including, without limitation, the payment of all
maintenance fees. Any expenses incurred in connection with such an application
shall be
3
31
borne by Debtor. The Debtor shall not abandon any right to file a Patent
application, or any pending Patent application or Patent without the consent of
Secured Party, which consent shall not be unreasonably withheld.
11. Intentionally Deleted.
12. No course of dealing between Debtor and Secured Party, nor any
failure to exercise, nor any delay in exercising, on the part of Secured Party,
any right, power or privilege hereunder or under the Loan Agreement shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
13. All of Secured Party's rights and remedies with respect to the
Patents, whether established hereby or by the Loan Agreement or any other
agreements or by law shall be cumulative and may be exercised singularly or
concurrently.
14. The provisions of this Agreement are severable, and if any clause or
provision shall be held invalid and unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
clause or provision of this Agreement in any jurisdiction.
15. This Agreement is subject to modification only by a writing signed by
both parties, except as provided in paragraph 5.
16. This Agreement shall be binding upon Debtor and Secured Party and
their respective permitted successors and assigns, and shall inure to the
benefit of Debtor, Secured Party and the respective permitted successors and
assigns of Debtor and Secured Party.
4
32
17. The validity and interpretation of this Agreement and the
rights and obligations of the parties shall be governed by the laws of the State
of California.
WITNESS the execution hereof under seal as of the day and year first above
written.
COSINE COMMUNICATIONS, INC.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
VENTURE LENDING & LEASING II, INC.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
5
33
SCHEDULE 1 TO
GRANT OF SECURITY INTEREST IN PATENTS
A. PATENTS AND PATENT APPLICATIONS:
Application Issue or Expiration
or Patent No. Filing Date Date Title
------------- ----------- ---------- -----
B. PATENT LICENSES:
Corresponding Date License Termination
Patent No. Granted Licensee Date
------------- ------------ ----------- -----------
6
34
EXHIBIT E
GRANT OF SECURITY INTEREST IN TRADEMARK
THIS AGREEMENT is made as of September 21, 1998, between CoSine
Communications, Inc., a California Corporation, having a mailing address at
0000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxx 00000 ("Debtor"), and Venture Lending &
Leasing II, Inc. ("Secured Party"). Secured Party's address is 0000 Xxxxx Xxxxx
Xxxxxx, Xxxxx 000, Xxx Xxxx, Xxxxxxxxxx 00000.
RECITALS
A. Debtor owns the Trademarks, Trademark registrations and Trademark
applications listed on Schedule 1 hereto, and is a party to the Trademark
Licenses listed on Schedule 1 hereto:
B. Debtor and Secured Party are parties to a Loan Agreement of even date
herewith (as the same may be amended from time to time, the "Loan Agreement");
C. Pursuant to the terms of the Loan Agreement, Debtor has granted to
Secured Party a security interest in certain personal property assets of
Debtor, including all right, title and interest of Debtor in, to and under all
Borrower's Trademarks (as defined in the Loan Agreement), Trademark
registrations, Trademark applications and Trademark Licenses (as defined in the
Loan Agreement), whether presently existing or hereafter arising or acquired,
together with the goodwill of the business symbolized by the Trademarks and the
applications therefor and the registrations thereof, and all products and
proceeds thereof, including, without limitation, any and all causes of action
which may exist by reason of infringement or dilution thereof or injury to the
associated goodwill, to secure the payment of all amounts owing under the Loan
Agreement.
D. Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the premises, Debtor hereby agrees
with Secured Party as follows:
1. To secure the complete and timely satisfaction of all
Obligations, Debtor hereby grants, to Secured Party a continuing security
interest in and lien on all of Debtor's right, title and interest in and to the
Trademarks, Trademark applications and Trademark Licenses listed on Schedule 1
hereto (as the same may be amended pursuant hereto from time to time),
including, without limitation, all renewals thereof, all proceeds of
infringement suits, the right to xxx for past, present and future infringements
and all rights corresponding thereto throughout the world (all of the foregoing
are collectively called the "Trademarks"), and the goodwill of the business to
which each of the Trademarks relates.
35
2. Debtor covenants and warrants that:
(a) The Trademarks are subsisting and have not been adjudged invalid
or unenforceable;
(b) To the best of Debtor's knowledge, each of the Trademarks is
valid and enforceable;
(c) No claim has been made that the use of any of the Trademarks
does or may violate the rights of any third person;
(d) Debtor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the Trademarks, free
and clear of any liens, charges and encumbrances, including, without
limitation, pledges, assignment, licenses, registered user agreements and
covenants by Debtor not to xxx third persons, except (i) Permitted Liens; and
(ii) any license disclosed in Schedule 1;
(e) Debtor has the unqualified right to enter into this Agreement
and perform its terms;
(f) Debtor has used, and will continue to use for the duration of
this Agreement, proper statutory notice in connection with its use of the
Trademarks; and
(g) Debtor has used, and will continue to use for the duration of
this Agreement, consistent standards of quality in its manufacture of products
sold under the Trademarks.
3. Debtor hereby grants to Secured Party and its employees and Secured
Party the right to visit Debtor's plants and facilities which manufacture,
inspect or store products sold under any of the Trademarks, and to inspect the
products and quality control records relating thereto at reasonable times
during regular business hours. Debtor shall do any and all acts required by
Secured Party to ensure Debtor's compliance with paragraph 2(g).
4. Debtor agrees that, until all of the Obligations shall have been
satisfied in full, it will not enter into any agreement (for example, a license
agreement) which is inconsistent with Debtor's obligations under this
Agreement, without Secured Party's prior written consent; provided that so long
as no Default or Event of Default shall have occurred and be continuing, Debtor
may grant licenses to third parties to use the Trademarks in the ordinary
course of business of both Debtor and such third party on arm's length and
customary business terms.
5. IF, BEFORE THE OBLIGATIONS SHALL HAVE BEEN SATISFIED IN
2
36
FULL, DEBTOR SHALL OBTAIN RIGHTS TO ANY NEW TRADEMARKS, THE PROVISIONS OF
PARAGRAPH 1 SHALL AUTOMATICALLY APPLY THERETO AND DEBTOR SHALL GIVE SECURED
PARTY PROMPT WRITTEN NOTICE THEREOF.
6. Debtor authorizes Secured Party unilaterally to modify this
Agreement by amending Schedule 1 to include any future Trademarks and Trademark
applications covered by paragraphs 1 and 5 hereof.
7. If any Event of Default shall have occurred and be continuing,
Secured Party shall have, in addition to all other rights and remedies given it
by this Agreement or any other Loan Document, those allowed by law and the
rights and remedies of a secured party under the Uniform Commercial Code as
enacted in any jurisdiction in which the Trademarks may be located and, without
limiting the generality of the foregoing, the Secured Party may immediately,
without demand of performance and without other notice (except as set forth
below) or demand whatsoever to Debtor, all of which are hereby expressly waived,
and without advertisement, sell at public or private sale or otherwise realize
upon, all or from time to time any of the Trademarks, or any interest which the
Debtor may have therein, and after deducting from the proceeds of sale or other
disposition of the Trademarks all expenses (including all reasonable expenses
for brokers' fees and legal services), shall apply the residue of such proceeds
toward the payment of the Obligations. Any remainder of the proceeds after
payment in full of the Obligations shall be paid over to Debtor. Notice of any
sale or other disposition of the Trademarks shall be given to Debtor at least
ten (10) days before the time of any intended public or private sale or other
disposition of the Trademarks is to be made, which Debtor hereby agrees shall be
reasonable notice of such sale or other disposition. At any such sale or other
disposition Secured Party or its Secured Party may, to the extent permissible
under applicable law, purchase the whole or any part of the Trademarks sold,
free from any right of redemption on the part of Debtor, which right is hereby
waived and released.
8. At such time as Debtor shall completely satisfy all of the
Obligations this Agreement shall terminate and Secured Party shall execute and
deliver to Debtor all instruments as may be necessary or proper to release the
security interests granted herein, subject to any disposition thereof which may
have been made by Secured Party pursuant hereto.
9. Any and all fees, costs and expenses, of whatever kind or nature,
including the reasonable attorneys' fees and legal expenses incurred by Secured
Party in connection with the preparation of this Agreement and all other
documents relating hereto and the consummation of this transaction, the filing
or recording of any documents (including all taxes in connection therewith) in
public offices, the payment or discharge of any taxes, counsel fees, maintenance
fees, encumbrances or otherwise protecting, maintaining or preserving the
Trademarks, or in defending or prosecuting any actions or proceedings arising
out of or related to the Trademarks, shall be borne and paid by Debtor on demand
by Secured Party and until so
37
paid shall be added to the principal amount of the Obligations.
10. Debtor shall have the duty, through counsel reasonably acceptable to
Secured Party, to prosecute diligently any Trademark applications pending as of
the date of this Agreement or thereafter until the Obligations shall have been
paid in full, to make federal application on registrable but unregistered
Trademarks, to file and prosecute opposition and cancellation proceedings and
to do any and all acts which are necessary or desirable to preserve and
maintain all rights in the Trademarks. Any expenses incurred in connection with
the Trademarks shall be borne by Debtor. The Debtor shall not abandon any
Trademark without the consent of Secured Party, which consent shall not be
unreasonably withheld.
11. Intentionally Deleted.
12. Debtor hereby authorizes and empowers Secured Party to make,
constitute and appoint any officer or Secured Party of Secured Party as Secured
Party may select, in its exclusive discretion, as Debtor's true and lawful
attorney-in-fact, with the power, after and during the continuance of an Event
of Default, to endorse Debtor's name on all applications, documents, papers and
instruments necessary for Secured Party to use the Trademarks, or to grant or
issue any exclusive or nonexclusive license under the Trademarks to anyone
else, or necessary for Secured Party to assign, pledge, convey or otherwise
transfer title in or dispose of the Trademarks to any third person as a part of
Secured Party's realization on such collateral upon acceleration of the
Obligations following an Event of Default. Debtor hereby ratifies all that such
attorney shall lawfully do or cause to be done by virtue hereof. This power of
attorney being coupled with an interest shall be irrevocable for the life of
this Agreement.
13. If Debtor fails to comply with any of its obligations hereunder,
Secured Party may do so in Debtor's name or in Secured Party's name, but at
Debtor's expense, and Debtor hereby agrees to reimburse Secured Party in full
for all expenses, including reasonable attorney's fees, incurred by Secured
Party in protecting, defending and maintaining the Trademarks.
14. No course of dealing between Debtor and Secured Party, nor any
failure to exercise, nor any delay in exercising, on the part of Secured Party,
any right, power or privilege hereunder or under the Loan Agreement shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any right, power or privilege.
15. All of Secured Party's rights and remedies with respect to the
Trademarks, whether established hereby or by the Loan Agreement or any other
agreements or by law, shall be cumulative and may be exercised singularly or
concurrently.
4
38
16. The provisions of this Agreement are severable, and if any clause
or provision shall be held invalid and unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision of this Agreement in any jurisdiction.
17. This Agreement is subject to modification only by a writing
signed by both parties, except as provided in paragraph 6.
18. This Agreement shall be binding upon Debtor and Secured Party and
their respective permitted successors and assigns, and shall inure to the
benefit of Debtor, Secured Party and the respective permitted successors and
assigns, of Secured Party and Debtor.
5
39
19. The validity and interpretation of this Agreement and the
rights and obligations of the parties shall be governed by the laws of the State
of California.
WITNESS the execution hereof under seal as of the day and year first above
written.
COSINE COMMUNICATIONS, INC.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
VENTURE LENDING & LEASING II, INC.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
6
40
SCHEDULE 1 TO
GRANT OF SECURITY INTEREST IN TRADEMARK
A. TRADEMARK AND TRADEMARK APPLICATIONS:
Application Issue or Expiration
or Trademark No. Filing Date Date Title
---------------- ----------- ---------- -----
B. TRADEMARK LICENSES:
Corresponding Date License Termination
Trademark No. Granted Licensee Date
------------- ------------ -------- -----------
7
41
EXHIBIT 10.8
EXHIBIT F
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
SHARES OF PREFERRED STOCK
OF
COSINE COMMUNICATIONS, INC.
(Void after June 30, 2006)
For value received, VENTURE LENDING & LEASING II, INC. (the "Original
Holder"), and any person to whom the interest in this Warrant is lawfully
transferred (the Original Holder and such transferees are referred to
hereinafter as the "Holder"), is entitled to purchase, subject to the terms
and conditions set forth herein, for the warrant exercise price per share and
having an aggregate warrant exercise price, each as set forth in Section 1
below, that number of fully paid and nonassessable shares of the preferred
stock, as hereinafter defined, of CoSine Communications, Inc., a California
corporation (the "Company"). This Warrant is being issued in connection with,
and as required by, that certain Loan and Security Agreement dated as of even
date herewith by and between the Company and the Original Holder (the "Loan and
Security Agreement").
1. Exercise of Warrant Payment for Shares.
(a) Preferred Stock. The Holder of this Warrant is entitled to
purchase, subject to the terms and conditions set forth herein, that number of
the Company's currently authorized Series A Preferred Stock (the "Series A
Preferred Stock") as calculated pursuant to Section 1(b)(i) below; provided,
however, that if Series B Preferred Stock (the "Series B Preferred Stock") is
issued and sold by the Company prior to June 30, 1999, then this Warrant shall
be exercisable exclusively for that number of the Company's duly authorized and
issued Series B Preferred Stock as calculated pursuant to Section 1(b)(ii)
below. For purposes of this Warrant, the term "Preferred Stock" shall mean the
Series A Preferred Stock; provided, however, that if this Warrant is
exercisable for Series B Preferred Stock pursuant to the terms and conditions
set forth above, then the term "Preferred Stock" shall mean the Series B
Preferred Stock.
(b) Warrant Exercise Price; Number of Shares. For purposes of this
Warrant, the initial warrant exercise price shall be $8.41 per share of Series
A Preferred Stock; provided, however, that if this Warrant is exercisable for
Series B Preferred Stock, pursuant to the terms and conditions set forth in
Section 1(a) above, then the initial warrant exercise price shall be equal to
the per share price of the Series B Preferred Stock as sold by the Company on
the closing of the sale of the Series B round (the "Warrant Exercise Price").
The Warrant Exercise Price is subject to adjustment from time to time as set
forth in Section 4 hereof.
(i) The total number of shares of Series A Preferred Stock issuable
under this Warrant shall be calculated by dividing the then applicable
Aggregate Warrant Exercise Price, as determined in Section 1(c) hereof, by the
then applicable Warrant Exercise Price, as set forth herein.
(ii) The total number of shares of Series B Preferred Stock issuable
under this Warrant shall be calculated by dividing the then applicable
Aggregate Warrant Exercise Price, as determined in Section 1(c) hereof, by the
then applicable Warrant Exercise Price, as set forth herein.
42
(c) Increase in Number of Shares. Initially upon issuance this
Warrant shall be immediately exercisable for 20,808 shares of Series A Preferred
Stock of Borrower at a per share exercise price of $8.41; provided that if
Series B Preferred Stock of the Borrower is issued and sold prior to June 30,
1999, then this Warrant shall be exercisable initially for a number of shares of
Series B Preferred Stock having an Agreement Warrant Exercise price of
$175,000.00 (i.e. 5% of $3,500,000). The total number of shares of Preferred
Stock issuable under this Warrant at the Warrant Exercise Price shall be
increased from time to time by
- that number of shares having an Aggregate Warrant Exercise Price equal to
five percent (5.0%) of the Term Loan commitment amount beyond $1 million
upon the Lender's making available that remaining portion of the working
capital facility as set forth in the Loan and Security Agreement;
- the total number of shares of Preferred Stock issuable under this Warrant
at the Warrant Exercise Price shall be increased from time to time by that
number of shares having an Aggregate Warrant Exercise Price equal to five
percent (5.0%) of the original principal amount of each Term Loan advanced
under the working capital facility set forth in the Loan and Security
Agreement.
(d) Exercise Period. This Warrant is exercisable from the date of
issuance, and will expire and be void, to the extent not previously exercised
pursuant to the terms hereof at 5:00 p.m., California time, on June 30, 2006
(the "Expiration Date").
(e) Method of Exercise: Cash Payment. The purchase right represented
by this Warrant may be exercised by the Holder, in whole or in part for up to
the total number of shares remaining available to exercise by the surrender of
this Warrant (with the Notice of Exercise in the form attached hereto as duly
executed) at the principal office of the Company and by the payment to the
Company, by check made payable to the Company drawn on a United States bank and
for United States funds of an amount in each case equal to the then applicable
Warrant Exercise Price per share multiplied by the number of Shares then being
purchased.
(f) Net Exercise Option: The Holder, in lieu of exercising this
Warrant by the payment of the Warrant Exercise Price pursuant to class (e) of
this Section 1, may elect, at any time on or before the Expiration Date, to
receive that number of shares of Preferred Stock equal to the quotient of: (i)
the difference between (A) the Per Share Price (as hereinafter defined) of the
Preferred Stock, less (B) the Warrant Exercise Price then in effect, multiplied
by the number of shares of Preferred Stock the Holder would otherwise have been
entitled to purchase hereunder (or such lesser number of shares as the Holder
may designate in the case of a partial exercise of this Warrant); over (ii) the
Per Share Price. Election to exercise under this section may be made by
delivering a signed Notice of Exercise in the form attached hereto to the
Company together with delivery of the warrant, and shall be effective upon the
date of receipt by the Company. For purposes of this paragraph (f), "Per Share
Price" means the product of: (i) the greater of (A) the closing price of the
Company's Common Stock as quoted by NASDAQ or listed on any exchange, whichever
is applicable, as published in the Western Edition of The Wall Street Journal
for the trading day immediately prior to the date of the Holder's election
hereunder or, (B) if applicable at the time of or in connection with the
exercise under clause (g) of this Section 1, the gross sales price of one share
of the Company's Common Stock pursuant to a registered public offering or that
amount which shareholders of the Company will receive for each share of Common
Stock pursuant to a merger, reorganization or sale of assets; and (ii) that
number of shares of Common Stock into which each share of Preferred Stock
issued pursuant to this warrant is convertible. If the Company's Common Stock
is not quoted by NASDAQ or listed on an exchange, the Per Share Price of the
Preferred Stock (or the equivalent number of shares of Common Stock into which
such Preferred Stock is convertible) shall be the price per share which the
Company would obtain from a willing buyer for shares sold by the Company from
authorized but unissued shares as such price shall be agreed upon by the Holder
and the Company or, if agreement cannot be reached within ten (10) business
days of the Holder's election hereunder, as such price shall be determined by a
panel of three (3) appraisers, one (1) to be chosen by the Company, one (1) to
be chosen by the Holder and the third to be chosen by the first two (2)
appraisers. If the appraisers cannot reach agreement within 30 days of the
Holder's election hereunder, then each appraiser shall deliver its appraisal
and the appraisal which is neither the highest nor the lowest shall constitute
the Per Share Price. In the event either party fails to choose an appraiser
within 30 days of the Holder's election hereunder, then the appraisal of the
sole appraiser shall constitute the Per Share Price. Each party shall bear the
cost of the appraiser selected by such party and the cost of the third
appraiser shall be borne one-half by each party. In
2
43
the event either party fails to choose an appraiser, the cost of the sole
appraiser shall be borne one-half by each party.
(g) Delivery of Instruments. If pursuant to the Company's
Articles of Incorporation, as amended, an event causing automatic conversion of
the Company's Preferred Stock shall have occurred prior to the exercise of this
Warrant, in whole or in part, then this Warrant shall be exercisable for the
number of shares of Common Stock of the Company into which the Preferred Stock
not purchased upon any prior exercise of the Warrant would have been so
converted (and, where the context requires, reference to "Preferred Stock"
shall be deemed to include such Common Stock). The Company agrees that the
shares of Preferred Stock purchased under this Warrant shall be and are deemed
to be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which the Notice of Exercise shall have been
received by the Company and payment made for such shares. Subject to the
provisions of Section 2, certificates for the shares of Preferred Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. Except as provided
in clause (f) of this Section 1, in case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant to the Holder hereof within a
reasonable time so that the Holder of the Warrant shall have the right to
receive, at an Aggregate Warrant Exercise Price not to exceed that payable upon
the exercise of the unexercised portion of this Warrant, the balance of the
shares purchasable under the Warrant surrendered upon such purchase to the
Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Preferred Stock as may be requested by the
Holder hereof and shall be registered in the name of such Holder or such other
name as shall be designated by such Holder, subject to the limitations
contained in Section 2.
(h) Supplement to Warrant. As soon as reasonably practicable
after the occurrence or non-occurrence of the latest event or condition
necessary to determine (i) the actual number and type of shares of the
Company's Preferred Stock issuable upon exercise of this Warrant and (ii) the
initial Warrant Exercise Price, the Company shall execute and deliver a
supplement to this Warrant in substantially the form of Exhibit "A" attached
hereto, completed with such quantity and price terms and other information as
have been determined as a result of the occurrence or non-occurrence of such
events or conditions. The provisions of such supplement, once completed and
executed, shall control the interpretation and exercise of this Warrant.
2. Limitation on Transfer.
(a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act of
1933, as amended (the "Act"). Each holder of this Warrant or the Preferred
Stock issuable hereunder will cause any proposed transferee of the Warrant of
Preferred Stock to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect to the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of this Section 2 or unless such securities have been registered
under the Securities Act or sold under Rule 144) be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
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(e) The Holder of this Warrant and each person to whom this Warrant
is subsequently transferred represents and warrants to the Company (by
acceptance of such transfer), in addition to those representations and
warranties contained in Section 17 hereof, that it will not transfer the
Warrant (or securities issuable upon exercise hereof unless a registration
statement under the Securities Act was in effect with respect to such
securities at the time of issuance thereof) except pursuant to (i) an effective
registration statement under the Securities Act, (ii) Rule 144 under the
Securities Act (or any other rule under the Securities Act relating to the
disposition of securities), or (iii) an opinion of counsel, reasonably
satisfactory to counsel for the Company, that an exemption from such
registration is available.
3. Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees that all shares of Preferred Stock which may be issued upon the
exercise of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the rights evidenced by this
Warrant, a sufficient number of shares of authorized but unissued Preferred
Stock, or other securities and property, when and as required to provide for
the exercise of the rights represented by this Warrant. The Company will take
all such action as may be necessary to assure that such shares of Preferred
Stock may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of any domestic securities exchange upon
which the Preferred Stock may be listed. The Company will not take any action
which would result in any adjustment of the Warrant Exercise Price (as defined
in Section 4 hereof) (i) if the total number of shares of Preferred Stock
issuable after such action upon exercise of all outstanding warrants, together
with all shares of Preferred Stock then outstanding and all shares of
Preferred Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Preferred Stock then authorized by the Company's
Articles of Incorporation, or (ii) if the total number of shares of Common
Stock issuable after such action upon the conversion of all such shares of
Preferred Stock together with all shares of Common Stock then outstanding and
then issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding would exceed the total number of shares
of Common Stock then authorized by the Company's Articles of Incorporation.
4. Adjustment of Warrant Exercise Price; Number of Shares. The Warrant
Exercise Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Warrant
Exercise Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Warrant Exercise Price resulting from such adjustment, the
number of shares obtained by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the product
thereof by the Warrant Exercise Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Company shall at
any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Warrant Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Warrant Exercise Price in effect immediately
prior to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock Property,
Reclassification. If at any time or from time to time the holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor,
(a) Preferred Stock, or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or options
to subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend,
or
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(c) Preferred Stock or other or additional stock or other securities
or property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Preferred Stock issued as a stock split, adjustments in respect of which shall
be covered by the terms of Section 4.1 above).
Then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and property
(including cash in the cases referred to in clauses (b) and (c) above) which
such Holder would hold on the date of such exercise had he been the holder of
record of such Preferred Stock as of the date on which holders of Preferred
Stock received or became entitled to receive such shares and/or all other
additional stock and other securities and property.
4.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If
any reorganization of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected in
such a way that holders of Preferred Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Preferred Stock, then,
as a condition of such reorganization, reclassification, consolidation, merger
or sale, lawful and adequate provisions shall be made whereby the Holder hereof
shall thereafter have the right to purchase and receive (in lieu of the shares
of the Preferred Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby) such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Preferred Stock equal to
the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In any such
case, appropriate provision shall be made with respect to the rights and
interests of the Holder of this Warrant to the end that the provisions hereof
(including without limitation, provisions for adjustments of the Warrant
Exercise Price and of the number of shares purchasable and receivable upon the
exercise of this Warrant) shall thereafter be applicable, as nearly as may be
possible, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.
4.4 Notice of Adjustment. Upon any adjustment of the Warrant Exercise
Price, and/or any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the registered Holder of the
Warrant at the address of such Holder as shown on the books of the Company. The
notice shall be in substantially the form of Exhibit "A" hereto, signed by an
executive officer of the Company and shall state the Warrant Exercise Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method calculation and the facts upon
which shall such calculation is based.
4.5 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon its Preferred
Stock;
(b) the Company shall declare any dividend upon its Preferred Stock
payable in stock or make any special dividend or other distribution to the
holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the holders
of its Preferred Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
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(f) The Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address
of such Holder as shown on the books of the Company, (i) at least 20 days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action, at least 20 days' written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution
or subscription rights, the date on which the holders of Preferred Stock shall
be entitled thereto. Any notice given in accordance with the foregoing clause
(ii) shall also specify the date on which the holders of Preferred Stock shall
be entitled to exchange their Preferred Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, or other action as the case may
be.
5. Issue Tax. The issuance of certificates for shares of Preferred Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Holder of the Warrant being exercised.
6. Closing of Books. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of meetings
of shareholders for the election of directors of the Company or any other
matters or any rights whatsoever as a shareholder of the Company. No dividends
or interest shall be payable or accrued in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until, and only
to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the Holder to purchase shares
of Preferred Stock, and no mere enumeration herein of the rights or privileges
of the Holder hereof, shall give rise to any liability of such Holder for the
Warrant Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by its creditors.
8. Registration Rights. The Company hereby grants registration rights to
the Holder of this Warrant for any common stock of the Company issued upon
conversion of the shares of Preferred Stock obtained upon exercise hereof,
equivalent to the registration rights granted to the investors party to that
certain Rights Agreement, dated November 7, 1997, among the Company, the
purchasers listed on Exhibit A attached thereto and Xxxx Xxxxxxxx, as an
individual, (the "Rights Agreement"), except that the Holder will not have any
of the registration rights set forth in Section 5 of the Rights Agreement.
9. "Market Stand-Off" Agreement. Each Holder agrees not to sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise
transfer or dispose of any common stock (or other securities) of the Company
held by such Holder during a period of time determined by the Company and its
underwriters (not to exceed 180 days in the event of the Company's initial
public offering and 90 days in the event of any other public offering)
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that all officers and directors of the
Company who then hold common stock (or other securities) of the Company enter
into similar agreements. Each Holder further agrees, if so requested by the
Company or its underwriters, to enter into an lock-up agreement evidencing the
terms of this clause in a form satisfactory to the
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Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the common stock (or securities) subject to the foregoing
restriction until the end of said period.
10. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, contained in
Sections 6, 8 and 9 shall survive the exercise of this Warrant.
11. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
deemed to have been given (i) upon receipt if delivered personally or by
courier (ii) upon confirmation of receipt if by telecopy or (iii) three
business days after deposit in the US mail, with postage prepaid and certified
or registered, to each such Holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor in the first
paragraph of this Warrant.
13. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of the
exercise of this Warrant, in whole or in part, upon request of the Holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the Holder hereof in respect of any rights to which the Holder
hereof shall continue to be entitled after such exercise in accordance with
this Warrant, provided, that the failure of the Holder hereof to make any such
request shall not affect the continuing obligation of the Company to the Holder
hereof in respect of such rights.
14. Descriptive Headings and Governing Law. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the law of the State of California.
15. Lost Warrants or Stock Certificates. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of any Warrant or stock certificate and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant or stock certificate, the Company
shall at its expense make and deliver a new Warrant or stock certificate, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
16. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any factional
share, pay the Holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Warrant Exercise Price.
17. Representations of Holder. With respect to this Warrant, Holder and
each person to whom this Warrant is subsequently transferred represents and
warrants to the Company as follows:
17.1 Experience. The Holder is experienced in evaluating and
investing in companies engaged in businesses similar to that of the Company;
and understands that investment in the Warrant involves substantial risks; the
Holder has made detailed inquiries concerning the Company, its business and
services, its officers and its personnel; the officers of the Company have made
available to Holder any and all written information that the Holder has
requested; the officers of the Company have answered to Holder's satisfaction
all inquiries made by it; in making this investment the Holder has relied upon
information made available to it by the Company and has acquired information
about the Company sufficient to reach an informed and knowledgeable decision to
acquire this Warrant; and the Holder has such knowledge and experience in
financial and business
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matters that it is capable of evaluating the merits and risks of investment in
the Company and it is able to bear the economic risk of that investment.
17.2 Investment. The Holder is acquiring the Warrant for investment
for its own account and not with a view to, or for resale in connection with,
any distribution thereof in violation of the Act. It understands that the
Warrant, the shares of Preferred Stock issuable upon exercise thereof and the
shares of Common Stock issuable upon conversion of the Preferred Stock, have not
been registered under the Act nor qualified under applicable state securities
laws.
17.3 Rule 144. The Holder acknowledges that the Warrant, the Preferred
Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Act or an exemption from such registration
is available. The Holder has been advised or is aware of the provisions of Rule
144 promulgated under the Act.
17.4 Access to Data. The Holder has had an opportunity to discuss the
Company's business management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. Additional Representations and Covenants of the Company. The Company
hereby represents, warrants and agrees as follows:
18.1 Corporate Power. The Company has all requisite corporate power
and corporate authority to issue this Warrant and to carry out and perform its
obligations hereunder.
18.2 Authorization. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution,
delivery and performance by the Company of this has been taken. This Warrant is
a valid and binding obligation of the Company, enforceable in accordance with
its terms.
18.3 Offering. Subject in part to the truth and accuracy of Holder's
representations set forth in Section 17 hereof, the offer, issuance and sale of
the Warrant is, and the issuance of Preferred Stock upon exercise of the
Warrant and the issuance of Common Stock upon conversion of the Preferred Stock
will be exempt from the registration requirements of the Act, and are exempt
from the qualification requirements of any applicable state securities laws;
and neither the Company nor anyone acting on its behalf will take any action
hereafter that would cause the loss of such exemptions.
18.4 Stock Issuance. Upon exercise of the Warrant, the Company will
use its best efforts to cause stock certificates representing the shares of
Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 Articles and By-Laws. The Company has provided Holder with true
and complete copies of the Company's Articles of Incorporation, By-Laws, and
each Certificate of Determination or other charter document setting forth any
rights, preferences and privileges of Company's capital stock, each as amended
and in effect on the date of issuance of this Warrant.
18.6 Conversion of Preferred Stock. As of the date hereof, each share
of the Series A Preferred Stock is convertible into four shares of the Common
Stock.
18.7 Financial and Other Reports. From time to time up to the earlier
of the Expiration Date or the complete exercise of this Warrant, the Company
shall furnish to Holder (i) within 90 days after the close of each fiscal year
of the Company, an audited balance sheet and statement of changes in financial
position at and as of the end of such fiscal year, together with an audited
statement of income for such fiscal year, (ii) within 30 days after the close
of each fiscal month, and unaudited balance sheet at and as of the end of such
month, together with an unaudited income statement for such month and for that
portion of the Company's fiscal year ending with that
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month; provided, however, that upon the closing of a public offering of the
Company's Common Stock, the Company shall thereafter furnish, within 45 days
after the close of each fiscal quarter of the Company, an unaudited balance
sheet and statement of cash flows at and as of the end of such quarter,
together with an unaudited statement of income for such quarter; and (iii)
promptly after sending, making available, or filing, copies of all reports,
proxy statements, and financial statements that the Company sends or makes
available to its shareholders and all registration statements and reports that
the Company files with the SEC or any other governmental or regulatory
authority.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its officers, thereunto duly authorized this 21st day of October, 1998.
COSINE COMMUNICATIONS, INC.
By:
----------------------------
Title:
-------------------------
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NOTICE OF EXERCISE
(To be signed only upon exercise of Warrant)
To: CoSine Communications, Inc. (the "Company")
[IF APPLICABLE] The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder, [(1) See Below]
__________________ (______) shares (the "Shares") of Series __ Preferred
Stock of CoSine Communications, Inc. (the "Company") and herewith makes
payment of ________________ Dollars ($______) therefor, and requests that
the certificates for such shares be issued in the name of, and delivered
to, _______________________, whose address is __________________________.
[IF APPLICABLE] The undersigned hereby elects to exercise its net issuance
rights to convert ______ percent (___%) of the value of the Warrant
pursuant to the provisions of Section 1(f) of the Warrant.
The undersigned represents that it is acquiring such Preferred Stock for its
own account for investment and not with a view to, or for resale in connection
with, any distribution thereof in violation of the Securities Act of 1933, as
amended (subject, however, to any requirements of law that the disposition
thereof shall at all times be within its control).
Dated _____________________________
Holder: _____________________________
By: _____________________________
Its: _____________________________
(Address)
______________________________________
______________________________________
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Preferred Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Preferred Stock covered
thereby set forth hereinbelow, into:
Name of Assignee Address No. of Shares
-----------------------------------------------------------------------------
Dated: _______________________
Holder: _______________________
By: _______________________
Its: _______________________
52
EXHIBIT "A"
[On Letterhead of the Company]
Reference is hereby made to that certain Warrant dated _____, 199_,
issued by CoSine Communications, Inc., a California corporation (the
"Company"), to VENTURE LENDING & LEASING II, INC., a Maryland corporation (the
"Original Holder").
[IF APPLICABLE] The Warrant provides that the actual number of shares of
the Company's capital stock issuable upon exercise of the Warrant and the
initial exercise price per share are to be determined by reference to one or
more events or conditions subsequent to the issuance of the Warrant. Such
events or conditions have now occurred or lapsed, and the Company wishes to
confirm the actual number of shares issuable and the initial exercise price.
The provisions of this Supplement to Warrant are incorporated into the Warrant
by this reference, and shall control the interpretation and exercise of the
Warrant.
[IF APPLICABLE] Notice is hereby given pursuant to Section 4.5 of the
Warrant that the following adjustment(s) have been made to the Warrant
[describe adjustments, setting forth details regarding method of calculation
and facts upon which calculation is based].
This certifies that the Holder is entitled to purchase from the Company
________________________________ (________) fully paid and nonassessable shares
of the Company's _____ Preferred Stock at a price of ______ Dollars ($_____)
per share (the "Warrant Exercise Price"). The Warrant Exercise Price and the
number of shares purchasable under the Warrant remain subject to adjustment as
provided in Section 4 of the Warrant.
Executed this ___ day of ___, 199__.
COSINE COMMUNICATIONS, INC.
By: _________________________
Name: _______________________
Title: ______________________
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