EXHIBIT 10.2
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWER: SCANSOFT, INC.
ADDRESS: 0 XXXXXXXXXX XXXXX
XXXXXXX, XXXXXXXXXXXXX 00000
DATE: OCTOBER 31, 2002
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, a California-chartered bank, with its principal place of
business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 and with a loan
production office located at One Xxxxxx Executive Park, Suite 200, 0000
Xxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000 ("Silicon") and the borrower
named above (the "Borrower"), with offices located at the above address
("Borrower's Address"). The Schedule and Exhibits to this Agreement (the
"Schedule" and the "Exhibits," respectively) shall for all purposes be deemed
to be part of this Agreement, and the same are integral parts of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 8
below.)
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans") up to the
amounts (the "Credit Limit") shown on the Schedule, provided no Default or
Event of Default has occurred and is continuing, and subject to deduction of
any Reserves for accrued interest and such other Reserves as Silicon deems
proper from time to time. Amounts borrowed may be repaid and reborrowed
during the term of this Agreement.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon.
1.3 OVERADVANCES. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional two percent (2%) per annum.
1.4 FEES. Borrower shall pay Silicon the fees shown on the Schedule,
which are in addition to all interest and other sums payable to Silicon and are
not refundable.
1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its
sole discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to
Silicon in its sole discretion (collectively, "Letters of Credit"). The
aggregate face amount of all outstanding Letters of Credit from time to time
(plus all Silicon exposure under any foreign exchange contracts) shall not
exceed the amount shown on the Schedule (the "Letter of Credit Sublimit"),
and shall be reserved against Loans which would otherwise be available
hereunder. Borrower shall pay all bank charges (including charges of Silicon)
for the issuance of Letters of Credit, together with such additional fee as
Silicon's letter of credit department shall charge in connection with the
issuance of
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
the Letters of Credit. Any payment by Silicon under or in connection with a
Letter of Credit shall constitute a Loan hereunder on the date such payment is
made. Each Letter of Credit shall have an expiry date no later than thirty days
prior to the Maturity Date. Borrower hereby agrees to indemnify, save, and hold
Silicon harmless from any loss, cost, expense, or liability, including payments
made by Silicon, expenses, and reasonable attorneys' fees incurred by Silicon
arising out of or in connection with any Letters of Credit. Borrower agrees to
be bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, except
in cases of Silicon's gross negligence or willful misconduct, in following
Borrower's instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto. Borrower understands that
Letters of Credit may require Silicon to indemnify the issuing bank for certain
costs or liabilities arising out of claims by Borrower against such issuing
bank. Borrower hereby agrees to indemnify and hold Silicon harmless with respect
to any loss, cost, expense, or liability incurred by Silicon under any Letter of
Credit as a result of Silicon's indemnification of any such issuing bank. The
provisions of this Loan Agreement, as it pertains to Letters of Credit, and any
other present or future documents or agreements between Borrower and Silicon
relating to Letters of Credit are cumulative.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of
the Obligations when due, and the performance of each of the Borrower's duties
under this Agreement and all documents executed in connection herewith, Borrower
hereby grants to Silicon a continuing security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Inventory, Equipment, Letter-of-Credit Rights, Supporting
Obligations, Receivables, General Intangibles (other than Borrower's
Intellectual property as set forth below), Payment Intangibles (other than
Borrower's Intellectual Property as set forth further below), all of Borrower's
Deposit Accounts, and all money, and all property now or at any time in the
future in Silicon's possession (including claims and credit balances), and all
proceeds (including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products and all books and records related to
any of the foregoing (all of the foregoing, together with all other property in
which Silicon may now or in the future be granted a lien or security interest,
is referred to herein, collectively, as the "Collateral"). The security interest
granted herein shall be a first priority security interest in the Collateral.
Upon the occurrence and during the continuance of an Event of Default, Silicon
may place a "hold" on any Deposit Account pledged as collateral. If Borrower
shall at any time, acquire a commercial tort claim, Borrower shall promptly
notify Silicon in a writing signed by Borrower of the brief details thereof and
grant to Silicon in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in form
and substance satisfactory to Silicon. The Collateral does not include: Any
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, now owned or later acquired; any patents, trademarks, service marks
and applications therefor; any trade secret rights, including any rights to
unpatented inventions, now owned or hereafter acquired.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make
Loans, Borrower represents and warrants to Silicon as follows, and Borrower
covenants that the following representations will continue to be true, and that
Borrower will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is
and will continue to be, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in
2
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), (iii) do not violate Borrower's
articles or certificate of incorporation, Borrower's by-laws, or any law or any
material agreement or instrument which is binding upon Borrower or its property,
and (iv) do not constitute grounds for acceleration of any material indebtedness
or obligation under any material agreement or instrument which is binding upon
Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in
the heading to this Agreement is its correct name. Listed on the Schedule are
all prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Silicon prior written notice
before opening any additional place of business where any significant Collateral
will be located, changing its chief executive office, changing its state of
formation or moving any of the Collateral to a location other than Borrower's
Address or one of the locations set forth on the Schedule, and will give
Silicon subsequent written notice within thirty (30) days after opening any
additional place of business where no significant Collateral will be located.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real property
in such a manner, or with such intent, as to become a fixture. Borrower is not
and will not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's
right to remove any Collateral from the leased premises, unless Borrower
delivers to Silicon such waivers and/or subordinations as Silicon may reasonably
specify as discussed further below. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Silicon, use its reasonable efforts to cause such third party to
execute and deliver to Silicon, in form acceptable to Silicon, such waivers
and subordinations as Silicon shall specify, so as to ensure that Silicon's
rights in the Collateral are, and will continue to be, superior to the rights of
any such third party. Borrower will keep in full force and effect, and will
comply with all the terms of, any lease of real property where any of the
Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral
in good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Silicon have been, and will be,
prepared in conformity with generally accepted accounting principles and now
and in the future will completely and accurately reflect the financial condition
of Borrower in all material respects, at the times and for the periods therein
stated. Between the last date covered by any such statement provided to
Silicon and the date
3
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
hereof, there has been no material adverse change in the financial condition or
business of Borrower. Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments, deposits
and contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in
all material respects, with all provisions of all federal, state and local laws
and regulations and all material foreign laws and regulations relating to
Borrower, including, but not limited to, those relating to Borrower's ownership
of real or personal property, the conduct and licensing of Borrower's
business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of Borrower, or
in any material impairment in the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted. Borrower will
promptly inform Silicon in writing of any claim, proceeding, litigation or
investigation instituted (or threatened in the event Borrower deems such threat
will likely result in a subsequent written claim) by or against Borrower
involving any single claim of $200,000 or more, or involving $400,000 or more in
the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for working capital purposes and as otherwise permitted herein. Borrower is not
purchasing or carrying any "margin stock" (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds of
any Loan will be used to purchase or carry any "margin stock" or to extend
credit to others for the purpose of purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents
and warrants to Silicon as follows: In all material respects, each Receivable
with respect to which Loans are requested by Borrower shall, on the date each
Loan is requested and made, (i) represent an undisputed bona fide existing
unconditional obligation of the Account Debtor created by the sale, delivery,
and acceptance of goods or the rendition of services in the ordinary course of
Borrower's business, and (ii) meet the Minimum Eligibility Requirements set
forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.
Borrower represents and warrants to Silicon as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct in all material
respects and all such invoices, instruments and other documents and all of
Borrower's books and records are and shall be genuine and in all respects
4
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
what they purport to be, and all signatories and endorsers have the capacity to
contract. All sales and other transactions underlying or giving rise to each
Receivable shall fully comply with all applicable laws and governmental rules
and regulations. All signatures and endorsements on all documents,
instruments, and agreements relating to all Receivables are and shall be
genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Silicon transaction reports in accordance with Section 6 of the
Schedule and loan requests, schedules and assignments of all Receivables, and
schedules of collections, all on Silicon's standard forms; provided, however,
that Borrower's failure to execute and deliver the same shall not affect or
limit Silicon's security interest and other rights in all of Borrower's
Receivables, nor shall Silicon's failure to advance or lend against a specific
Receivable affect or limit Silicon's security interest and other rights therein.
Loan requests received after 12:00 Noon will not be considered by Silicon until
the next Business Day. Together with each such schedule and assignment, or later
if requested by Silicon, Borrower shall furnish Silicon with copies (or, at
Silicon's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Receivables, and Borrower warrants the
genuineness of all of the foregoing. Borrower shall also furnish to Silicon an
aged accounts receivable trial balance in such form and at such intervals as
Silicon shall request. In addition, Borrower shall deliver to Silicon copies (or
originals upon Silicon's request) of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, immediately upon receipt thereof and in the same form as
received, with all necessary indorsements, all of which shall be with recourse.
Borrower shall also provide Silicon, upon request, with copies of all credit
memos within a reasonable time period.
4.4 COLLECTION OF RECEIVABLES. Borrower shall direct the Account
Debtors to remit all Receivables to Borrower's lockbox account maintained at
Silicon and Silicon shall transfer such funds to Borrower's operating account.
However, upon the occurrence of an Event of Default or in the event Borrower
fails to maintain Minimum Cash/Excess Availability of at least $6,000,000, all
such payments on, and proceeds of, Receivables shall be applied by Silicon
directly to the Obligations in such order as Silicon shall determine. In either
event, upon the acceleration of the time for repayment of the Obligations, or
upon the Maturity Date if the Obligations have not been satisfied, Silicon or
its designee may, at any time, notify Account Debtors that Silicon has been
granted a security interest in the Receivables.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the
disposition of any Collateral outside the ordinary course of business shall be
delivered, in kind, by Borrower to Silicon in the original form in which
received by Borrower not later than the following Business Day after receipt
by Borrower, to be applied to the Obligations in such order as Silicon shall
determine; provided that, if no Default or Event of Default has occurred,
Borrower shall not be obligated to remit to Silicon the proceeds of the sale of
worn out or obsolete equipment disposed of by Borrower in good faith in an arm's
length transaction for an aggregate purchase price of $100,000 or less (for
all such transactions in any fiscal year). In the event the Borrower does not
maintain Minimum Cash/Excess Availability of at least $6,000,000, the proceeds
of any disposition of Collateral within the ordinary course of business shall
also be delivered, in kind, by Borrower to Silicon in accordance with the
terms of this Section. Borrower agrees that it will not commingle proceeds of
Collateral with any of Borrower's other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for Silicon. Nothing in this Section 4.5 limits the restrictions on
disposition of Collateral set forth else where in this Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all material
disputes or claims relating to Receivables. Borrower shall not forgive
(completely or partially), compromise or settle any Receivable for less than
payment in full, or agree to do any of the foregoing, except that Borrower may
do so, provided that: (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm's length
transactions, which are reported to Silicon on the regular reports provided to
Silicon; (ii) no Default or Event of Default has occurred and is continuing; and
(iii) taking into account all such discounts settlements and forgiveness, the
total outstanding Loans will not
5
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
exceed the Credit Limit. Silicon may, at any time after acceleration of the
time for repayment of the Loans, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable judgment and, in all cases, Silicon shall credit
Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 RETURNS. In the event any attempted return occurs after the
acceleration of the time for repayment of the Loans, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Upon the occurrence and continuance of an Event of
Default or if Borrower fails to maintain Minimum Cash/Excess Availability of at
least $6,000,000, Silicon may thereafter, from time to time, verify directly
with the respective Account Debtors the validity, amount and other matters
relating to the Receivables, by means of mail, telephone or otherwise, either
in the name of Borrower or Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
a Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Silicon be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Silicon from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance
to Silicon, so that Silicon is satisfied that such insurance is, at all times,
in full force and effect. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Silicon shall release
to Borrower insurance proceeds with respect to Equipment totaling less than
$100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Silicon copies of all reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time reasonably
specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and
on three Business Day's (five Business Days' if no amounts are outstanding under
this Agreement) notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such
6
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
information to its auditors, regulatory agencies, and attorneys, and pursuant to
any subpoena or other legal process. The foregoing inspections and audits shall
be at Borrower's expense and the charge therefor shall be $700 per person per
day (or such higher amount as shall represent Silicon's then current standard
charge for the same), plus reasonable out of pocket expenses. Borrower will not
enter into any agreement with any accounting firm, service bureau or third party
to store Borrower's books or records at any location other than Borrower's
Address that prohibits, restricts or otherwise interferes with Silicon's access
to such books and records and related rights as Silicon has under this Loan
Agreement, and in any event, Borrower shall furnish Silicon with prior written
notice of all agreements related thereto. Borrower waives the benefit of any
evidentiary privilege precluding or limiting the disclosure, divulgence or
delivery of any of its books and records (except that Borrower does not waive
any attorney-client privilege).
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent, which consent shall
not be unreasonably withheld, do any of the following: (i) merge or consolidate
with another corporation or entity unless such entity is in the same line of
business of Borrower, Borrower is the surviving entity, there is no material
change in the existing management team, and such merger or consolidation will
not require use of the proceeds of Loans hereunder in excess of $4,000,000 in
the aggregate during the term of this Agreement; (ii) acquire or purchase any
assets, except in the ordinary course of business and provided that such
acquisition or purchase will not require use of the proceeds of Loans hereunder
in excess of $4,000,000 in the aggregate during the term of this Agreement;
(iii) enter into any other transaction outside the ordinary course of business;
(iv) sell or transfer any Collateral, except for the sale of finished Inventory
in the ordinary course of Borrower's business, and except for the sale of
obsolete or unneeded Equipment in the ordinary course of business; (v) store any
Inventory or other Collateral with any warehouseman or other third party, except
in the ordinary course of business upon notice to Silicon; (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis, except in accordance with its current business practices; (vii) make any
loans of any money or other assets in excess of $2,000,000 during the term of
this Agreement; (viii) incur any debts outside the ordinary course of business
without Silicon's prior written consent with the exception of unsecured debt not
to exceed $6,000,000 to be incurred in connection with the Philips Acquisition,
which consent shall not be unreasonably withheld in the event (a) Borrower will
remain in compliance with all covenants set forth herein on a pro forma basis,
(b) such indebtedness will be unsecured, and (c) the covenants imposed by any
such lender are less restrictive than the covenants set forth herein; (ix)
guarantee or otherwise become liable with respect to the obligations of another
party or entity in excess of $500,000 in the aggregate; (x) pay or declare any
dividends on Borrower's stock during the term of this Agreement (except for
dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower's stock for
consideration in excess of $2,000,000 during the term of this Agreement ("net"
of any repurchase of stock issued after the date of this Agreement); (xii) make
any change in Borrower's capital structure which would have a material adverse
effect on Borrower or on the prospect of repayment of the Obligations; or (xiii)
dissolve or elect to dissolve. In no event shall transactions be permitted by
subsections (i), (ii), (vii), (x), and (xi) above, exceed $4,000,000 in the
aggregate during the term of this Agreement, In addition, transactions permitted
by the foregoing provisions of this Section 5.5 are only permitted if no Default
or Event of Default has occurred or would occur as a result of such transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Silicon with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Silicon, make
available Borrower and its officers, employees and agents and Borrower's books
and records, to the extent that Silicon may deem them reasonably necessary in
order to prosecute or defend any such suit or proceeding.
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
7
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that
the Maturity Date may be extended upon written agreement of the parties hereto.
6.2 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an
amount equal to the face amount of all such Letters of Credit plus all interest,
fees and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and
all of the terms and provisions of this Agreement shall continue in full force
and effect until all Obligations have been paid and performed in full (or if
Silicon has been provided with cash collateral to secure any outstanding
Letters of Credit pursuant to the terms hereof); provided that, without limiting
the fact that Loans are subject to the discretion of Silicon, Silicon may, in
its sole discretion, refuse to make any further Loans after termination. No
termination shall in any way affect or impair any right or remedy of Silicon,
nor shall any such termination relieve Borrower of any Obligation to Silicon,
until all of the Obligations have been paid and performed in full. Upon payment
and performance in full of all the Obligations and written termination of this
Agreement by Silicon, Silicon shall promptly deliver to Borrower termination
statements, requests for reconveyances and such other documents as may be
required to fully terminate Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or
any of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon within three (3) days of when due or
any other monetary Obligation in excess of $10,000 within five (5) days after
the sooner of (i) notice from Silicon to Borrower of such failure to pay, or
(ii) Borrower becoming aware of such failure to pay; or (c) the total Loans and
other Obligations outstanding at any time shall exceed the Credit Limit for
three (3) days after the sooner of (i) notice from Silicon to Borrower, or (ii)
Borrower becoming aware of such event; or (d) Borrower shall fail to comply
with any of the financial covenants set forth in the Schedule or shall fail to
perform any other material non-monetary Obligation which by its nature cannot be
cured; or (e) Borrower shall fail to perform any other non-monetary Obligation,
which failure is not cured within 5 Business Days after the date due; or (f)
any levy, assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made on all or any part of the Collateral with a value in
excess of $250,000 which is not cured within 10 days after the occurrence of
the same, or immediately upon the service of process upon Silicon seeking to
attach by trustee or other process, any of Borrower's funds on deposit with, or
assets of the Borrower in the possession of, Silicon; or (g) any default or
event of default occurs under any obligation secured by a Permitted Lien
securing indebtedness in an amount in excess of $200,000, which is not cured
within any applicable cure period or waived in writing by the holder of the
Permitted Lien; or (h) Borrower breaches any material contract or obligation,
which has or may reasonably be expected to have a material adverse effect on
Borrower's business or financial condition; or (i) Dissolution, termination of
existence, insolvency or business failure of Borrower; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect; or (j) the commencement of any
proceeding against Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 30 days
after the date commenced; or (k) revocation or termination of, or limitation or
denial
8
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
of liability upon, any guaranty of the Obligations or any attempt to do any of
the foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or (l) Borrower defaults in
a material way under any agreement evidencing any indebtedness in excess of
$250,000 to any third party; or (m) Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement, or if any Person
who has subordinated such indebtedness or obligations terminates or in any way
limits his subordination agreement; or (n) the acquisition by any Person or
beneficial ownership, directly or indirectly, through a purchase, merger, or
other acquisition transaction or series of transactions, of shares of capital
stock of the Borrower entitling such Person to exercise 40% or more of the total
voting power of all shares of capital stock of the Borrower entitled to vote
generally in the elections of directors (any shares of voting stock of which
such Person is the beneficial owner that are not then outstanding being deemed
outstanding for purposes of calculating such percentage) other than any such
acquisition by the Borrower; or (o) Borrower shall generally not pay its debts
as they become due, or Borrower shall conceal, remove or transfer any part of
its property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (p) there shall be (i) a
material impairment in the perfection or priority of Silicon's security interest
in the Collateral or in the value of such Collateral; or (ii) a material
adverse change in the business, operations or condition (financial or otherwise)
of the Borrower (for the purpose of this subsection, material adverse change
shall mean an adverse change in the business, operations or condition (financial
or otherwise) of the Borrower sufficiently significant to cause a reasonable
person to conclude that there is a substantial probability that the Borrower
will not be able to satisfy its future financial obligations); or (q) Silicon,
acting in good faith and in a commercially reasonable manner, deems itself
insecure because of the occurrence of an event prior to the effective date
hereof of which Silicon had no knowledge on the effective date; or (r) Borrower
shall breach any term of the IP Negative Pledge Agreement executed by the
Borrower in favor of Silicon in any material way.
7.2 REMEDIES. Upon the occurrence and during the continuance of any
Event of Default, Silicon, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one or
more of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation, provided, however, if
an Event of Default described in Section 7.1(i) occurs all Obligations are
immediately due and payable without any action by Silicon); (c) Take possession
of any or all of the Collateral wherever it may be found and Borrower grants
Silicon a license to enter and occupy any of its premises without charge, to
exercise any of Silicon's rights and remedies; (d) Require Borrower to assemble
any or all of the Collateral and make it available to Silicon at places
designated by Silicon which are reasonably convenient to Silicon and Borrower;
(e) ship, reclaim recover, store, finish, maintain, repair, prepare for sale,
advertise for sale and sell the Collateral. Silicon shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(f) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral; (g) apply against the Obligations any sums in any of
Borrower's general, special or other Deposit Accounts with Silicon; and (h)
Demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional three percent (3%) per
annum.
9
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower
and Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in
cash or by cashier's check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Silicon may (but is not obligated to) direct
any prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Silicon shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 POWER OF ATTORNEY. Effective upon acceleration of the time for
repayment of the Loans, Borrower irrevocably appoints Silicon as its lawful
attorney to: (i) endorse Borrower's name on any checks or other forms of payment
or security; (ii) sign Borrower's name on any invoice or xxxx of lading for
any Account Debtor or drafts against Account Debtors; (iii) make, settle, and
adjust all claims under Borrower's insurance policies; (iv) settle and adjust
disputes and claims about the Receivables directly with Account Debtors, for
amounts and on terms Silicon determines reasonable; (v) transfer the Collateral
into the name of Silicon or a third party as the Code permits; and (vi)
otherwise enforce its rights and remedies as a secured party as the Code
permits. Silicon's appointment as Borrower's attorney in fact, and all of
Silicon's rights and powers, coupled with an interest, are irrevocable until
all Obligations have been fully repaid and performed and Silicon's obligation
to provide Loans terminates. Any and all reasonable sums paid and any and all
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Silicon with respect to the foregoing shall be added to and become
part of the Obligations, shall be payable on demand, and shall bear interest at
a rate equal to the highest interest rate applicable to any of the Obligations.
In no event shall Silicon's rights under the foregoing power of attorney or any
of Silicon's other rights under this Agreement be deemed to indicate that
Silicon is in control of the business, management or properties (except to the
extent specifically provided herein) of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of
any sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled
thereto; Borrower shall remain liable to Silicon for any deficiency.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Silicon shall have all the other rights and remedies
accorded a secured party under the Massachusetts Uniform Commercial Code and
under all other applicable laws, and under any other instrument or agreement now
or in the future entered into between Silicon and Borrower, and all of such
rights and remedies are cumulative and none is exclusive. Exercise or partial
exercise by Silicon of one or more of its rights or remedies shall not be deemed
an election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.
8. DEFINITIONS.
As used in this Agreement, the following terms have the following
meanings:
"Account Debtor" means the obligor on a Receivable.
10
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which Silicon is open for business.
"Code" means the Uniform Commercial Code as adopted and in effect in
the Commonwealth of Massachusetts from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
"Default" means any event which with notice or passage of time or
both, would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9-102 of the
Code.
"Distributor Inventory Reserves" means the amount of products sold to
Borrower's distributors, which still remain in the distributors' possession,
valued at the then sales price and reserved for by Borrower on its books at any
given time.
"Eligible Receivables" means Receivables arising in the ordinary course
of Borrower's business from the sale of goods or rendition of services, which
Silicon, in its commercially reasonable judgment, shall deem eligible for
borrowing, based on such considerations as Silicon may from time to time deem
appropriate. Without limiting the fact that the determination of which
Receivables are eligible for borrowing is a matter of Silicon's commercially
reasonable discretion, the following (the "Minimum Eligibility Requirements")
are the minimum requirements for a Receivable to be an Eligible Receivable: (i)
the Receivable must not be outstanding for more than 90 days from its invoice
date, (ii) the Receivable must not represent progress xxxxxxxx, or be due under
a fulfillment or requirements contract with any party other than Digital River,
Inc. (or any successor agreed upon between Borrower and Silicon), or any other
deferred revenue basis (provided, however, in the event Borrower maintains a
quarterly Fixed Charge Coverage Ratio of greater than or equal to 1.50 to 1.00,
any deferred revenue offset will not result in an exclusion of an otherwise
Eligible Receivable) with the Account Debtor, (iii) the Receivable must not be
subject to any contingencies (including Receivables arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
Account Debtor may be conditional, except as may otherwise be acceptable to
Silicon in its discretion), (iv) the Receivable must not be owing from an
Account Debtor with whom the Borrower has any material dispute (whether or not
relating to the particular Receivable), (v) the Receivable must not be owing
from an Affiliate of Borrower, (vi) the Receivable must not be owing from an
Account Debtor which is subject to any insolvency or bankruptcy proceeding, or
whose financial condition is not acceptable to Silicon, or which, fails or goes
out of a material portion of its business, (vii) the Receivable must not be
owing from the United States or any department, agency or instrumentality
thereof (unless there has been compliance, to Silicon's satisfaction, with the
United States Assignment of Claims Act), (viii) the Receivable must not be owing
from an Account Debtor located outside the United States (unless pre-approved by
Silicon in its discretion in writing, or backed by a letter of credit
satisfactory to Silicon, or FCIA insured satisfactory to Silicon) provided,
however, in the event Borrower maintains a quarterly Fixed Charge Coverage Ratio
of greater than or equal to 1.50 to 1.00, up to $2,000,000 of such foreign
Receivables billed and collected from the United States will not be excluded if
such Receivables otherwise constitute Eligible Receivables), and (ix) the
Receivable must not be owing from an Account Debtor to whom Borrower is or may
be liable for goods purchased from such Account Debtor or otherwise. Receivables
owing from one Account Debtor will not be deemed Eligible Receivables to the
extent they exceed 25% (33% with respect to Xxxxxx Micro, Inc. in the event
Borrower maintains a quarterly Fixed Charge Coverage Ratio of greater than or
equal to 1.50 to 1.00) of the total Receivables outstanding. In addition, if
more than 50% of the Receivables owing from an Account Debtor are outstanding
more than 90 days from their invoice date (without regard to unapplied credits)
or are otherwise not eligible Receivables, then all Receivables owing from that
Account Debtor will be deemed ineligible for borrowing.
11
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"Event of Default" means any of the events set forth in Section 7 .1 of
this Agreement.
"General Intangibles" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, rights to payment for credit extended,
amounts due to Borrower, credit memoranda in favor of Borrower, warranty
claims, causes of action, corporate or other business records, deposits,
Deposit Accounts, goodwill, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Silicon, rights
to purchase or sell real or personal property, rights as a licensee of any kind,
telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, not otherwise
excluded herein, discs, tapes and tape files, claims under guaranties, security
interests or other security held by or granted to Borrower, all rights to
indemnification and all other intangible property of every kind and nature
(other than Receivables ).
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit), and all materials and supplies of every kind, nature and description
which are or might be used or consumed in Borrower's business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, merchandise or other personal property, and all
warehouse receipts, documents of title and other documents representing any of
the foregoing.
"Letter-of-Credit Rights" means all letter-of-credit rights
including, without limitation, "letter-of-credit rights" as defined in the Code
and also any right to payment or performance under a letter of credit, whether
or not the beneficiary has demanded or is at the time entitled to demand payment
or performance.
"Minimum Cash/Excess Availability" means the Borrower's (i) cash
deposits maintained at Silicon (plus up to $1,000,000.00 which may be
maintained with third party institutions subject to the terms of Section 9 (1)
of the Schedule), and/or (ii) excess "availability" under this Agreement (net
of Loans, Letters of Credit, Cash Management Services or other indebtedness
under this Agreement), as determined by Silicon based upon the Credit Limit
restrictions set forth in Section 1 of the Schedule.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, including, without limitation, the
Borrower's obligations pursuant to the IP Negative Pledge Agreement, whether
arising from an extension of credit, opening of a letter of credit, banker's
acceptance, foreign exchange contracts, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by Silicon in Borrower's debts
owing to others), absolute or contingent, due or to become due, including,
without limitation, all interest, charges, expenses, fees, attorney's fees,
expert witness fees, audit fees, letter of credit fees, collateral monitoring
fees, closing fees, facility fees, termination fees, minimum interest charges
and any other sums chargeable to Borrower under this Agreement or under any
other present or future instrument or agreement between Borrower and Silicon.
12
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
"Payment Intangibles" means all payment intangibles including, without
limitation, "payment intangibles" as defined in the Code and also any general
intangible under which the Account Debtor's primary obligation is a monetary
obligation.
"Permitted Liens" means the following: (i) purchase money security
interests in specific items of Equipment in an amount not to exceed
$1,000,000.00 in the aggregate during the term of this Agreement; (ii) leases of
specific items of Equipment in an amount not to exceed $1,000,000.00 in the
aggregate during the term of this Agreement; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Silicon, which consent shall not be unreasonably withheld to the extent such
contemplated liens are to secure indebtedness in an amount not to exceed
$200,000; (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; and
(viii) Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subsection (iv) above,
that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Philips Acquisition" means the acquisition contemplated to be
consummated by the Borrower on or before March 31, 2003 in substantial
accordance with the terms previously disclosed to Silicon in writing.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), accounts receivable including
invoiced royalties, health-care insurance receivables, rights to payment,
letters of credit, contract rights, chattel paper, instruments, securities,
securities accounts, investment property, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all
rights of stoppage in transit and all other rights or remedies of an unpaid
vendor, lienor or secured party.
"Reserves" means, as of any date of determination, such amounts as
Silicon may from time to time establish and revise in good faith reducing the
amount of Loans, Letters of Credit and other financial accommodations which
would otherwise be available to Borrower under the lending formula(s) provided
in the Schedule: (a) to reflect events, conditions, contingencies or risks
which, as determined by Silicon in good faith, do or may affect (i) the
Collateral or any other property which is security for the Obligations or its
value (including without limitation any increase in delinquencies of
Receivables), (ii) the assets, business or prospects of Borrower or any
Guarantor, or (iii) the security interests and other rights of Silicon in the
Collateral (including the enforceability, perfection and priority thereof); or
(b) to reflect Silicon's good faith belief that any collateral report or
financial information furnished by or on behalf of Borrower or any guarantor to
Silicon is or may have been incomplete, inaccurate or misleading in any
material respect; or (c) in respect of any state of facts which Silicon
determines in good faith constitutes an Event of Default or may, with notice
or passage of time or both, constitute an Event of Default.
13
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
"Supporting Obligations" means all supporting obligations including,
without limitation, "supporting obligations" as defined in the Code and also any
letter-of-credit right or secondary obligation which supports the payment or
performance of an account, chattel paper, a document, a general intangible, an
instrument, or investment property.
Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with generally accepted accounting principles, consistently applied. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks and other items of non-immediately available payment received by Silicon
(including proceeds of Receivables and payment of the Obligations in full) shall
be deemed applied by Silicon on account of the Obligations two Business Days
after receipt by Silicon of immediately available funds, and, for purposes of
the foregoing, any such funds received after 12:00 Noon on any day shall be
deemed received on the next Business Day. Silicon shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Silicon in its commercially reasonable discretion,
and Silicon may charge Borrower's loan account for the amount of any item of
payment which is returned to Silicon unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in Silicon's sole discretion reversed and
re-applied, to the Obligations, in such order and manner as Silicon shall
determine in its sole discretion.
9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations (other than nonrecurring or extraordinary charges prior to
the occurrence of an Event of Default) to Borrower's Deposit Accounts
maintained with Silicon.
9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with
an account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or
admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Silicon or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Silicon shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expiration of one Business
Day following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
14
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.
9.8 WAIVERS. The failure of Silicon at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Silicon shall not waive
or diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon shall be liable for any claims, demands,
losses or damages, for consequential or punitive damages, made, claimed,
incurred or suffered by Borrower or any other party through the ordinary
negligence of Silicon, or any of its directors, officers, employees, agents,
attorneys or any other Person affiliated with or representing Silicon, but
nothing herein shall relieve Silicon from liability for its own gross negligence
or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for
all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Silicon,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Silicon incurs in order to do the following: prepare
and negotiate this Agreement and the documents relating to this Agreement;
obtain legal ad vice in connection with this Agreement or Borrower; enforce,
or seek to enforce, any of its rights; prosecute actions against, or defend
actions by, Account Debtors; commence, intervene in, or defend any action or
proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party
claim, or other claim; examine, audit, copy, and inspect any of the Collateral
or any of Borrower's books and records; protect, obtain possession of, lease,
dispose of, or otherwise enforce Silicon's security interest in, the Collateral;
and otherwise represent Silicon in any litigation relating to Borrower. In
satisfying Borrower's obligation hereunder to reimburse Silicon for attorneys
fees, Borrower may, for convenience, issue checks directly to Silicon's
attorneys, Xxxxxx & Xxxxxxxxxx, LLP, but Borrower acknowledges and agrees that
Xxxxxx & Xxxxxxxxxx, LLP is representing only Silicon and not Borrower in
connection with this Agreement. If either Silicon or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing
party shall be entitled to recover its reasonable costs and attorneys' fees
incurred in connection with the prosecution of such action and, including (but
not limited to) reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Silicon may be entitled pursuant to this
Section 9.12 shall immediately become part of Borrower's Obligations, shall
be due on demand, and shall
15
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
bear interest at a rate equal to the highest interest rate applicable to any
of the Obligations. All attorneys' fees and costs to which Borrower may be
entitled pursuant to this Section 9.12 shall be due on demand.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void. No consent by Silicon to any assignment shall release
Borrower from its liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Silicon, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of
an action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after the first act, occurrence or omission upon which
such claim or cause of action, or any part thereof, is based, and the service of
a summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 RIGHT OF SET-OFF. Borrower and any guarantor hereby grant to
Silicon a lien, security interest, and right of setoff as security for all
Obligations to Silicon, whether now existing or hereafter arising upon and
against all deposits, credits, collateral and property, now or hereafter in
the possession, custody, safekeeping, or control of Silicon or any entity under
the control of Silicon Valley Bank or in transit to any of them, enforcement of
which is exercisable only after the occurrence and during the continuance of
an Event of Default. At any time after the occurrence and during the continuance
of an Event of Default, without demand or notice, Silicon may set off the
same or any part thereof and apply the same to any liability or obligation of
Borrower and any guarantor then due and regardless of the adequacy of any other
collateral securing the loan. ANY AND ALL RIGHTS TO REQUIRE SILICON TO EXERCISE
ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE
LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS,
CREDITS, OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY
KNOWINGLY, VOLUNTARILY, AND IRREVOCABLY WAIVED.
9.17 SECTION HEADINGS; CONSTRUCTION. Section headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
section, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.18 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts
and transactions hereunder and all rights and obligations of Silicon and
Borrower shall be governed by the laws of the Commonwealth of Massachusetts. As
a material part of the consideration to Silicon to enter into this Agreement,
Borrower (i) agrees that all actions and
16
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
proceedings relating directly or indirectly to this Agreement shall, at
Silicon's option, be litigated in state or federal courts located within
Massachusetts; (ii) consents to the jurisdiction and venue of any such court and
consents to service of process in any such action or proceeding by personal
delivery or any other method permitted by law; and (iii) waives any and all
rights Borrower may have to object to the jurisdiction of any such court, or to
transfer or change the venue of any such action or proceeding, provided,
however, that if for any reason Silicon cannot avail itself of such courts in
the Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts
and venue in Santa Clara, California.
9.19 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT,
ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
9.20 CONFIDENTIALITY. In handling any confidential information, Silicon
shall exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Silicon's
subsidiaries or affiliates in connection with their present or prospective
business relations with Borrower; (ii) to prospective transferees or purchasers
of any interest in the Loans, if, and only if, such parties agree to be bound
by this or a similar confidentiality agreement; (iii) as required by law,
regulation, subpoena, or other order; (iv) as required in connection with
Silicon's examination or audit; and (v) as Silicon considers appropriate in
exercising remedies under this Agreement. Confidential information does not
include information that either: (a) is in the public domain or in Silicon's
possession when disclosed to Silicon, or becomes part of the public domain after
disclosure to Silicon (through no act or omission of Silicon); or (b) is
disclosed to Silicon by a third party, which third party is not under any
non-disclosure obligation.
17
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first above written.
BORROWER:
SCANSOFT, INC.
BY /s/ Xxxxxxx X. Xxxxxx
__________________________________
PRESIDENT
BY /s/ Xxxxxxx X. Xxxxxx
__________________________________
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
SILICON:
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
BY /s/ Xxxx X. Xxxxxxxxx
__________________________________
TITLE Regional Market Manager
_______________________________
716815.13
18
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: SCANSOFT, INC.
ADDRESS: 0 XXXXXXXXXX XXXXX
XXXXXXX, XXXXXXXXXXXXX 00000
DATE: OCTOBER 31, 2002
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of (A) or (B),
below:
(A)
(i) $10,000,000 at any one time outstanding (the "Maximum
Credit Limit"); minus
(ii) the aggregate amounts then undrawn on all outstanding
letters of credit, 10% of all forward foreign exchange
contracts, or any other accommodations issued or incurred, or
caused to be issued or incurred by Silicon for the account
and/or benefit of the Borrower.
(B)
(i) 70% (80% in the event Borrower maintains a Fixed Charge
Coverage Ratio of at least 1.50 to 1.00) of the amount of the
Borrower's Eligible Receivables (as defined in Section 8
above) (the "Receivables Loans"); minus
(ii) 80% (40 % in the event Borrower maintains a Fixed Charge
Coverage Ratio of at least 1.50 to 1.00) of Distributor
Inventory Reserves; minus
(iii) the aggregate amounts then undrawn on all outstanding
letters of credit, 10% of all forward foreign exchange
contracts, or any other accommodations issued or incurred, or
caused to be issued or incurred by Silicon for the account
and/or benefit of the Borrower.
For purposes of determining the applicable percentage
rates in Sections 1(B )(i) and (ii), above, in the event this
Agreement becomes effective prior to receipt by Silicon of
Borrower's June 30, 2002 financial statements, it will be
assumed that Borrower currently maintains a Fixed Charge
Coverage Ratio of at least 1.50 to 1.00.
LETTER OF CREDIT/FOREIGN EXCHANGE CONTRACT
(Section 1.5 and 1.6): $2,000,000
1
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
2. INTEREST.
INTEREST RATE (Section 1.2):
A rate equal to the "Prime Rate" in effect from time to time, plus
(i).75% per annum. In the event the quarterly Fixed Charge Coverage Ratio is
greater than or equal to 1.75 to 1.00, the applicable interest rate shall be a
rate equal to the "Prime Rate" in effect from time to time, plus .375% per
annum, effective five (5) Business Days after Silicon has been provided
satisfactory evidence of such compliance. In the event the Fixed Charge
Coverage Ratio thereafter falls below 1.75 to 1.00 as of any subsequent testing
period, the applicable interest rate shall immediately be increased to a rate
equal to the "Prime Rate" in effect from time to time, plus .75% per annum.
Interest shall be calculated on the basis of a 360-day year for the actual
number of days elapsed. As used herein, "Prime Rate" means the greater of (i)
the rate announced from time to time by Silicon as its "prime rate", or (ii)
4.25% per annum, and is a base rate upon which other rates charged by Silicon
are based, and it is not necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall change on each date there is a
change in the Prime Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): Not applicable.
3. FEES (Section 1.4):
Loan Fee: $75,000.00 payable concurrently herewith.
Collateral Handling Fee: Intentionally omitted.
Unused Line Fee: In the event, in any calendar month (or portion
thereof at the beginning and end of the term hereof), the average daily
principal balance of the Loans outstanding during the month is less than the
amount of the Maximum Credit Limit, Borrower shall pay Silicon an unused line
fee in an amount equal to .375% per annum on the difference between the amount
of the Maximum Credit Limit and the average daily principal balance of the
Loans outstanding during the month, which unused line fee shall be computed and
paid monthly, in arrears, on the first day of the following month.
Cancellation Fee: Intentionally omitted.
4. MATURITY DATE
(Section 6.1): October 31, 2004.
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with each of the following
covenants. Compliance shall be determined as of the end of each fiscal quarter
of Borrower, except as otherwise specifically provided below:
A. MINIMUM TANGIBLE NET WORTH:
2
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
Borrower shall maintain a Tangible Net Worth of not less than the sum
of (i) plus (ii) below:
(i)(A) In the event the Philips Acquisition is consummated on or before
March 30, 2003, (a) $8,000,000, from the date of this Agreement until
June 29, 2003,
(b) $11,000,000, from June 30, 2 003 and thereafter; plus
or
(B) In the event the Philips Acquisition is not (or has not been)
consummated on or before March 30, 2003,
(a) $8,000,000, from the date of this Agreement until Xxxxx
00, 0000,
(x) $14,000,000, from March 31, 2002 and thereafter, plus
(ii) 50% of all consideration received after the date hereof from
proceeds from the issuance of any equity securities of the Borrower
and/or subordinated debt incurred by the Borrower.
This Minimum Tangible Net Worth covenant shall be tested monthly in the event
there are any amounts outstanding under this Agreement.
B. MINIMUM FIXED CHARGE COVERAGE RATIO:
Borrower shall maintain a quarterly minimum Fixed Charge Coverage Ratio
of 1.25 to 1.00.
DEFINITIONS. For purposes of the foregoing financial covenants, the
following term shall have the following meaning:
"Fixed Charge Coverage Ratio" shall mean the ratio of
Borrower's (i) earnings before interest, taxes, depreciation
and amortization (exclusive of (a) restructuring charges
reimbursed by the seller and (b) unreimbursed restructuring
charges in an amount not to exceed $1,000,000 in the
aggregate, each as associated with the Philips Acquisition)
to (ii) payments of indebtedness (including interest payments
to be made in connection with this Agreement and any
subordinated indebtedness but excluding payments of
indebtedness (subject to the terms of this Agreement) related
to the acceleration of the Learnout & Hauspie Note dated
December 12, 2001 in the original principal amount of
$3,500,000 (the "L&H Note") made on or before March 31, 2003
and the repayment (subject to the terms of this Agreement)
of the $5,000,000 Note related to the Philips Acquisition (the
"Philips Note") and the $1,000,000 obligation to the seller in
connection with the Philips Acquisition (the "Additional
Philips Obligation") on or before March 31, 2004), plus cash
dividends, cash taxes, long term lease payments and unfinanced
capital expenditures.
"Liabilities" shall have the meaning ascribed thereto by
generally accepted accounting principles.
"Tangible Net Worth" shall mean the excess of total assets
over total liabilities, determined in accordance with
generally accepted accounting principles, with the following
adjustments:
(A) there shall be excluded from assets: (i) notes,
accounts receivable and other obligations owing to the
Borrower from its officers or other Affiliates, and (ii) all
assets which would be classified
3
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
as intangible assets under generally accepted accounting
principles, including without limitation goodwill, licenses,
patents, trademarks, trade names, copyrights, capitalized
software and organizational costs, licenses and franchises
(B) there shall be excluded from liabilities: all
indebtedness which is subordinated to the Obligations under a
subordination agreement in form specified by Silicon or by
language in the instrument evidencing the indebtedness which
is acceptable to Silicon in its discretion.
6. REPORTING.
(Section 5.3):
Borrower shall provide Silicon with the following:
1. Weekly (monthly, in the event the Borrower maintains Minimum Cash/
Excess Availability of equal to or greater than $ 6,000,000.00), and upon each
loan request, borrowing base certificates and transaction reports.
2. Monthly accounts payable agings, aged by invoice date, and
outstanding or held check registers, if any, within fifteen days after the end
of each month.
3. Monthly Receivable agings, aged by invoice date, receivable
reconciliations, and when borrowing, sell through reports, within fifteen days
after the end of each month.
4. Monthly unaudited financial statements, as soon as available, and in
any event within thirty days after the end of each month.
5. Monthly Compliance Certificates, within thirty days after the end of
each month, in such form as Silicon shall reasonably specify, signed by the
Chief Financial Officer of Borrower, certifying that as of the end of such month
Borrower was in full compliance with all of the terms and conditions of this
Agreement, and setting forth calculations showing compliance with the financial
covenants set forth in this Agreement and such other information as Silicon
shall reasonably request, including, without limitation, a statement that at the
end of such month there were no held checks.
6. Quarterly unaudited financial statements, as soon as available, and
in any event within forty-five days after the end of each fiscal quarter of
Borrower.
7. Annual operating budgets (including income statements, balance
sheets and cash flow statements, by month) for the upcoming fiscal year of
Borrower within thirty days prior to the end of each fiscal year of Borrower.
8. Annual financial statements, as soon as available, and in any event
within 120 days following the end of Borrower's fiscal year, certified by
independent certified public accountants acceptable to Silicon.
9. Such additional reports and information as Silicon may from time to
time specify acting reasonably.
7. COMPENSATION (Intentionally omitted).
4
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
8. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): See Perfection Certificate of even date herewith
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): See Perfection Certificate of even date herewith
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): See Perfection Certificate of even date herewith
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Perfection Certificate of even date herewith
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
9. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with all of the
following additional covenants:
(1) BANKING RELATIONSHIP. In order for Silicon to properly monitor its
loan arrangement with the Borrower, Borrower shall at all times maintain its
primary banking relationship with Silicon, with all significant investments and
deposits to be maintained at Silicon so long as rates remain competitive,
provided, however, (i) Borrower may maintain up to $250,000 in the aggregate in
accounts (investment, deposit or otherwise) maintained with domestic third party
institutions, and (ii) Borrower and its subsidiaries may maintain up to
$1,000,000 in the aggregate in foreign accounts.
(2) SUBORDINATION OF INSIDE DEBT. All present and future indebtedness
of the Borrower to its officers, directors and shareholders ("Inside Debt")
shall, at all times, be subordinated to the Obligations pursuant to a
subordination agreement on Silicon's standard form. Borrower represents and
warrants that there is no Inside Debt presently outstanding, except for the
Xxxxxx Note, the L&H Note, the Philips Note and the Additional Philips
Obligation (each as defined herein). Prior to incurring any Inside Debt in the
future, Borrower shall cause the person to whom such Inside Debt will be owed to
execute and deliver to Silicon a subordination agreement on Silicon's standard
form.
(3) SUBORDINATION AGREEMENTS. Borrower warrant and represents that
Borrower is not presently indebted to any third party except as described
hereinbelow. Prior to incurring any additional indebtedness, Borrower shall
cause each creditor to execute and deliver to Silicon a subordination agreement
on Silicon's standard form subordinating to the Obligations the indebtedness of
Borrower to any such creditor. In addition, Borrower acknowledges and agrees
that it shall make no payments on account of (i) the L&H Note (ii) certain
indebtedness payable to Xxxxxx Xxxxxx pursuant
5
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
to a certain agreement dated March 5, 2002 in the original principal amount of
$4,276,232.00 (the "Xxxxxx Note"), (iii) the Philips Note, or (iv) and the
Additional Philips Obligation, unless, prior to the making of such scheduled
payment (or an accelerated payment with respect to L&H Note in the event a
successful secondary equity offering is not completed by December 15, 2002), no
Event of Default has occurred and is continuing and Borrower has delivered to
Silicon a certificate in form satisfactory to Silicon certifying that Borrower
is in compliance with the financial covenants set forth herein as of the most
recent testing period and will remain in compliance with all financial
covenants, on a pro forma basis, for the next succeeding testing period taking
into account, in each instance, the contemplated payments to be made and,
provided, further, that no accelerated payments on the L&H Note and no payments
on the Philips Note or the Additional Philips Obligation shall be permitted
unless Borrower maintains Cash/Excess Availability of a minimum of $5,000,000
just prior to and immediately after any contemplated payment and after giving
effect to any such payments.
(4) INTELLECTUAL PROPERTY NEGATIVE PLEDGE AGREEMENT. As a condition
precedent to the effectiveness of this Agreement, Borrower shall have executed
and delivered to Silicon an intellectual property Negative Pledge Agreement (the
"IP Negative Pledge Agreement"), substantially in the form attached hereto as
Exhibit B.
6
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
BORROWER: SILICON:
SCANSOFT, INC. SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By /s/ Xxxxxxx X. Xxxxxx By /s/ Xxxx X. Xxxxxxxxx
------------------------------ --------------------------------
President or Title Regional Market Manager
By /s/ Xxxxxxx X. Xxxxxx
------------------------------
Senior Vice President and Chief Financial Officer
7
