EXHIBIT 10.44
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT dated September 27, 2002, between SILICON
VALLEY BANK ("Bank"), whose address is 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx,
Xxxxxxxxxx 00000 and the following borrowers (jointly and severally, the
"Borrower"):
Mobility Electronics, Inc., a Delaware corporation ("Parent"), whose
address is 0000 X. Xxxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxx 00000,
Portsmith, Inc., a Delaware corporation, whose address is 000 Xxxxxxxx,
Xxxxx 000, Xxxxx, XX 00000
Magma, Inc., a Delaware corporation, whose address is 0000 Xxx Xxxxx,
Xxx Xxxxx, XX 00000
provides the terms on which Bank will lend to Borrower and Borrower will repay
Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document.
2 LOAN AND TERMS OF PAYMENT
2.1 PROMISE TO PAY.
Borrower promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding the Credit Limit shown on Schedule 1
to the Agreement (the "Schedule"). Amounts borrowed under this Section may be
repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or telephone by
12:00 p.m. Pacific time on the Business Day the Advance is to be made. Borrower
must promptly confirm the notification by delivering to Bank the Payment/Advance
Form attached as Exhibit B. Bank will credit Advances to Borrower's deposit
account. Bank may make Advances under this Agreement based on instructions from
a Responsible Officer or his or her designee or without instructions if the
Advances are necessary to meet Obligations which have become due. Bank may rely
on any telephone notice given by a person whom Bank believes is a Responsible
Officer or designee. Borrower will indemnify Bank for any loss Bank suffers due
to such reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity Date, when
all Advances are immediately payable.
(d) Borrower shall have the right to terminate the Committed Revolving Line
prior to the Revolving Maturity Date, effective three Business Days after
written notice of termination is given to Bank, in which event Borrower shall
pay in full all Obligations on the effective date of termination. In the event
Borrower terminates the Committed Revolving Line prior to the Revolving Maturity
Date, or if the Committed Revolving Line is terminated by Bank prior to the
Revolving Maturity Date upon an Event of Default, Borrower shall pay Bank the
Termination Fee set forth in the Schedule.
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2.1.2 LETTERS OF CREDIT SUBLIMIT.
Bank will issue or have issued letters of credit (the "Letters of
Credit") for Borrower's account not exceeding the amount shown on the Schedule.
Each Letter of Credit will have an expiry date of no later than 180 days after
the Revolving Maturity Date, but Borrower's reimbursement obligation will be
secured by cash on terms acceptable to Bank on or before the Revolving Maturity
Date if the term of this Agreement is not extended by Bank. Borrower agrees to
execute any further documentation in connection with the Letters of Credit as
Bank may reasonably request.
2.1.3 [INTENTIONALLY OMITTED]
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1, 2.1.2 and 2.1.3 exceed
the lesser of either (i) the Committed Revolving Line or (ii) the Borrowing
Base, Borrower shall pay Bank the excess within three Business Days thereafter.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding principal balance
at the interest rate set forth in the Schedule. After an Event of Default,
Obligations accrue interest at 5 percent above the rate effective immediately
before the Event of Default. The interest rate increases or decreases when the
Prime Rate changes. Interest is computed on a 360 day year for the actual number
of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable on the 6th
day of each month. Bank may debit any of Borrower's deposit accounts maintained
with Bank, including the Accounts shown on Schedule 2, for principal and
interest payments owing or any amounts Borrower owes Bank. Bank will promptly
notify Borrower when it debits Borrower's accounts. These debits are not a
set-off. Payments received after 12:00 noon Pacific time are considered received
at the opening of business on the next Business Day. When a payment is due on a
day that is not a Business Day, the payment is due the next Business Day and
additional fees or interest accrue.
2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee in the amount
shown on the Schedule, which shall be due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees and
reasonable expenses) incurred through and after the date of this Agreement, are
payable when due.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be true (subject to the
materiality provisions in Section 5) on the date of the Payment/Advance Form and
on the effective date of each Credit Extension and no Event of Default may have
occurred and be continuing, or result from the Credit
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Extension. Each Credit Extension is Borrower's representation and warranty on
that date that the representations and warranties of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, the Bank will, at all times, have a first-priority security interest in
all of the Collateral. Bank's lien and security interest in the Collateral will
continue until Borrower fully satisfies its Obligations, and all obligations of
the Bank to make Advances or otherwise extend credit accommodations have
terminated.
4.2 AUTHORIZATION TO FILE FINANCING STATEMENTS.
Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in
order to perfect or protect Bank's interest in the Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that the following statements are true
and correct on the date hereof and Borrower covenants that the following
statements will continue to be true and correct throughout the term of this
Agreement and so long as any Obligations are outstanding:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each of its Subsidiary is duly existing and in good
standing in its state of formation and qualified and licensed to do business in,
and in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be qualified, except where the failure to
do so could not reasonably be expected to cause a Material Adverse Change.
Borrower has not changed its state of formation or its organizational structure
or type or any organizational number (if any) assigned by its jurisdiction of
formation.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which it is a party or
by which it is bound in which the default could reasonably be expected to cause
a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. Borrower has no other deposit account, other than the deposit
accounts described in the Representations or Schedule 2. Each Account with
respect to which Advances are requested by Borrower shall, on the date each
Advance is requested and made, 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. The Collateral is not in the possession of any third party
bailee (such as at a warehouse), except for Collateral consisting of Inventory
located at the following warehouse in Memphis, Tennessee: 0000 X. Xxxxxx Xxxxx,
Xxxxxxx, Xxxxxxxxx 00000 (the "Tennessee Warehouse"). Borrower shall cause the
Tennessee Warehouse to execute and deliver to Bank an agreement pursuant to
which the Tennessee Warehouse waives any liens on the Collateral stored with it
and acknowledges that it is holding such Collateral for the benefit of Bank in
form acceptable to the Bank. In the event that Borrower, after the date hereof,
intends to store or otherwise deliver the Collateral to such a bailee, then
Borrower will receive the prior written consent of Bank and such bailee must
acknowledge in writing that the bailee waives any liens on the Collateral and
acknowledges that the bailee is holding such Collateral for the benefit of Bank
in form acceptable to the Bank. Borrower has no notice of any actual or imminent
Insolvency Proceeding of any account debtor whose accounts are an
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Eligible Account in any Borrowing Base Certificate. All Inventory is in all
material respects of good and marketable quality, free from material defects.
Borrower is the sole owner of the Intellectual Property, except for licenses
granted to its customers in the ordinary course of business and permitted under
this Agreement. Each Patent is, to the best of Borrower's knowledge, valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party, except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers and legal
counsel, threatened by or against Borrower or any Subsidiary, which could
reasonably be expected to result in damages or costs to Borrower or any
Subsidiary of $100,000 or more, or in which an adverse decision could reasonably
be expected to cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP and
which do not result in any tax lien on any of the Collateral. Borrower and each
Subsidiary has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted,
except where the failure to do so could not reasonably be expected to cause a
Material Adverse Change.
5.6 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.7 REPRESENTATIONS; FULL DISCLOSURE.
The information in the Representations previously submitted to Bank
continues to be true and correct as of the date hereof. No written
representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank (taken together with all such written
certificates and written statements to Bank) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained in the certificates or statements not misleading.
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6 AFFIRMATIVE COVENANTS
Borrower will do all of the following for so long as Bank has an
obligation to lend, or there are outstanding Obligations (unless otherwise
specified below):
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify would reasonably be
expected to cause a material adverse effect on Borrower's business or
operations. Borrower will comply, and have each Subsidiary comply, with all
laws, ordinances and regulations to which it is subject, noncompliance with
which could have a material adverse effect on Borrower's business or operations
or would reasonably be expected to cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank:
(i) as soon as available, but no later than 30 days after
the last day of each month, a company prepared
consolidated balance sheet and income statement
covering Borrower's consolidated operations during
the period certified by a Responsible Officer and in
a form acceptable to Bank;
(ii) Monthly perpetual inventory reports for the Inventory
valued on a first-in, first-out basis at the lower of
cost or market (in accordance with GAAP) and such
other inventory reports as are requested by Bank in
its good faith business judgment, all within 20 days
after the end of each month. Notwithstanding the
foregoing, Bank understands that Borrower presently
reports its inventory on a standard cost basis and
Borrower may continue to do so until it converts its
accounting system to enable it to report its
inventory on a first-in, first-out basis at the lower
of cost or market (in accordance with GAAP), which
Borrower shall do beginning with reports for the
month of April, 2003. Borrower's reports on a
standard cost basis shall be accompanied by variance
data in form acceptable to Bank showing variance to
actual costs and other data as Bank shall specify. In
the event the Asset Based Terms are in effect before
Borrower reports its Inventory on a first-in,
first-out basis, the variance between standard cost
and actual cost shall be subject to a reserve
established by the Bank in its good faith business
judgment.
(iii) Within 20 days after the last day of each month,
Borrower will deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer in the
form of Exhibit C, provided that if the Asset Based
Terms are in effect such Borrowing Base Certificate
shall be delivered to Bank weekly as specified by
Bank.
(iv) Within 20 days after the last day of each month,
Borrower will deliver to Bank an aged listings of
Borrower's Accounts and accounts payable, aged by
invoice date, and Borrower's outstanding or held
check register (if any).
(v) Within 30 days after the last day of each month,
Borrower will deliver to Bank with the monthly
financial statements a Compliance Certificate signed
by a Responsible Officer in the form of Exhibit D.
(vi) Within 45 days after the end of each fiscal quarter,
budgets, projections, and operating plans for the
next succeeding four fiscal quarters;
(vii) Borrower's 10-Q Report filed with the Securities
Exchange Commission, at the same time so filed;
(viii) as soon as available, but no later than 90 days after
the last day of Borrower's fiscal year, audited
consolidated financial statements prepared under
GAAP, consistently applied, together with an
unqualified opinion on the financial
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statements from an independent certified public
accounting firm reasonably acceptable to Bank;
(ix) prompt notice of any material change in the
composition of the Intellectual Property, including
any subsequent ownership right of Borrower in or to
any copyright, patent or trademark not shown in any
intellectual property security agreement between
Borrower and Bank or knowledge of an event that
materially adversely affects the value of the
Intellectual Property.
(x) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any
Subsidiary of $100,000 or more, or in which an
adverse decision could reasonably be expected to
cause a Material Adverse Change;
(xi) other financial and other information as the Bank
reasonably requests;
Provided that if there are no Advances or Letters of Credit
outstanding throughout a month, then the following reports
under the following clauses above need not be provided with
respect to such month: 6.2(a)(i), (ii), (iii), (iv), and (v),
provided that if, in a following month, the Borrower requests
an Advance, Borrower shall provide said reports at the time
the request for the Advance is made.
(b) Allow Bank to audit Borrower's Collateral at Borrower's expense, provided
that such expenses shall not exceed $600 per person per day, plus reasonable out
of pocket expenses. Such audits will be conducted no more often than every 6
months, provided that if the Asset Based Terms are in effect, such audits may be
conducted by Bank quarterly, and if an Event of Default or an event which, with
notice or passage of time or both would constitute an Event of Default, has
occurred and is continuing, there shall not be a limit on the number of such
audits.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments (except for taxes
or assessments being contested in good faith with adequate reserves under GAAP
and which do not result in any tax lien on any of the Collateral) and will
deliver to Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank may reasonably request. Insurance policies will be in a
form, with companies, and in amounts that are satisfactory to Bank in Bank's
reasonable discretion. All property policies will have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
will show the Bank as an additional insured and provide that the insurer must
give Bank at least 20 days notice before canceling its policy. At Bank's
request, Borrower will deliver certified copies of policies and evidence of all
premium payments. Proceeds payable under any policy will, at Bank's option, be
payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository, operating and investment
accounts, and not less than 75% of its total cash and cash equivalents, with
Bank.
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6.7 FINANCIAL COVENANTS.
Borrower will comply with the financial covenants set forth on the
Schedule.
6.8 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Borrower has no present maskworks, software, computer programs and
other works of authorship registered with the United States Copyright Office
except as disclosed on Exhibit 7.1 hereto, and Borrower shall not hereafter
register any maskworks, software, computer programs or other works of authorship
subject to United States copyright protection with the United States Copyright
Office without first complying with the following: (i) providing Bank with at
least 15 days prior written notice thereof, (ii) providing Bank with a copy of
the application for any such registration and (iii) executing and filing such
other instruments, and taking such further actions as Bank may reasonably
request from time to time to perfect or continue the perfection of Bank's
interest in the Collateral, including without limitation the filing with the
United States Copyright Office, simultaneously with the filing by Borrower of
the application for any such registration, of a copy of this Agreement or a
Supplement hereto in form acceptable to Bank identifying the maskworks,
software, computer programs or other works of authorship being registered and
confirming the grant of a security interest therein in favor of Bank.
Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Bank's written consent.
6.9 COLLECTION OF ACCOUNTS.
Borrower shall establish a lockbox account with Bank, pursuant to a
blocked account agreement in such form as Bank may specify, and all proceeds of
Accounts and other Collateral shall be deposited by Borrower into such lockbox
account. The sums received in such lockbox account shall be applied to the
outstanding monetary Obligations in such order as Bank shall determine, and any
excess will be deposited by Bank in Borrower's operating account at Bank.
Borrower agrees that it will not commingle payments and proceeds of Accounts and
other Collateral with any of Borrower's other funds or property, but will hold
such payments and proceeds separate and apart from such other funds and property
and in an express trust for Bank. Nothing in this Section limits the
restrictions on Transfers of Collateral set forth elsewhere in this Agreement.
6.10 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank's security interest in
the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld, for so long as Bank has an
obligation to lend and there are any outstanding Obligations:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property or any Collateral, except for Transfers (i) of
Inventory in the ordinary course of business; (ii) of non-exclusive licenses of
Intellectual Property and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business; (iii) of
exclusive licenses of Intellectual Property in the ordinary course of business,
provided that such exclusive licenses do not, in the aggregate, account for more
than 20% of Borrower's revenue determined in accordance with GAAP, in any fiscal
quarter, (iv) of worn-out or obsolete Equipment.
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7.2 CHANGES IN BUSINESS, NON-ORDINARY COURSE TRANSACTIONS, OWNERSHIP,
MANAGEMENT OR LOCATIONS OF COLLATERAL.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related
thereto, or enter into any transaction outside the ordinary course of business,
or any person or group of related persons shall acquire more than 50% of the
outstanding shares of stock of Borrower, in one or more transactions. Borrower
will not, without at least 30 days prior written notice to the Bank, relocate
its chief executive office, change its state of formation (including
reincorporation), change its organizational number or name or add any new
offices or business locations (including warehouses) in which Borrower maintains
or stores over $5,000 in Collateral.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except that a Subsidiary may merge or consolidate
into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here, subject to Permitted Liens.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends (other than dividends payable solely in
stock of the Borrower) or make any distribution or payment or redeem, retire or
purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a nonaffiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.
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8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations within 3 days after
their due date.
8.2 CERTAIN DEFAULTS.
If Borrower (i) fails to provide the financial statements called for by
Section 6.2 hereof or by any other provisions of this Agreement within the time
therein provided; or (ii) Borrower breaches any of the financial covenants set
forth in Section 6.7 of this Agreement (except as provided in Section 6.3 of
Schedule 1 hereto); or (iii) fails to perform or comply with any other term,
condition or covenant in any other agreement between Borrower and Bank which is
not cured within any cure period provided in such agreement.
8.3 OTHER DEFAULTS.
If Borrower fails to perform or comply with any other term, condition
or covenant in this Agreement (other than as set forth in Section 8.1 or 8.2
above), and such failure is not cured within 30 days after the date it occurs
8.4 MATERIAL ADVERSE CHANGE.
A Material Adverse Change occurs.
8.5 ATTACHMENT.
If any of Borrower's assets having a value in the aggregate of more
than $50,000 is attached, seized, levied on, or comes into possession of a
trustee or receiver and the attachment, seizure or levy is not removed in 10
days, or if Borrower is enjoined, restrained, or prevented by court order from
conducting a material part of its business or if a judgment or other claim
becomes a Lien on a material portion of Borrower's assets, or if a notice of
lien, levy, or assessment is filed against any of Borrower's assets by any
government agency and not paid within 10 days after Borrower receives notice.
These are not Events of Default if stayed or if a bond is posted pending contest
by Borrower;
8.6 INSOLVENCY.
If Borrower fails to pay its debts generally as they mature, or if
Borrower begins an Insolvency Proceeding, or if an Insolvency Proceeding is
begun against Borrower and not dismissed or stayed within 30 days;
8.7 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.8 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days;
8.9 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document; or
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8.10 GUARANTY.
Any guaranty of any Obligations ceases for any reason to be in full
force or any Guarantor does not perform any obligation under any guaranty of any
of the Obligations, or any material misrepresentation or material misstatement
exists now or later in any warranty or representation in any guaranty of the
Obligations or in any certificate delivered to Bank in connection with the
guaranty, or any circumstance described in Sections 8.5, 6 or 8 occurs to any
Guarantor.
No Credit Extensions will be made during any of the cure periods set forth in
Sections 8.1-8.10 above.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.6 occurs all Obligations are immediately due and
payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under this
Agreement or under any other agreement between Borrower and Bank and terminate
the Committed Revolving Line;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable to
protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it holds,
or (ii) any amount held by Bank owing to or for the credit or the account of
Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell the Collateral. Bank is granted a non-exclusive,
royalty-free license or other right to use, without charge, Borrower's labels,
Intellectual Property, and advertising matter, and any similar property as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section, Borrower's rights under all licenses and all franchise
agreements inure to Bank's benefit; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or xxxx of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
are coupled with an interest, are irrevocable until all Obligations have been
fully repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
-10-
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and demand
payment of, and collect any Accounts, general intangibles and other Collateral,
and, in connection therewith, Borrower irrevocably authorizes Bank to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, and, in Bank's good faith business judgment, to grant extensions of
time to pay, compromise claims and settle Accounts and general intangibles for
less than face value. When an Event of Default occurs and continues, Borrower
shall collect all payments in trust for Bank and, if requested by Bank,
immediately deliver the payments to Bank in the form received from the account
debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to obtain the insurance called for by Section 6.5 or fails to
pay any premium thereon or fails to pay any other amount, which Borrower is
obligated to pay under this Agreement or any other Loan Document, Bank may
obtain such insurance or make such payment, and all amounts so paid by Bank are
Bank Expenses and immediately due and payable, bearing interest at the then
applicable rate and secured by the Collateral. No payments by Bank shall be
deemed an agreement to make similar payments in the future or Bank's waiver of
any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices and Section 9207 of
the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other person. Borrower bears all risk of loss, damage or destruction of the
Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
9.8 ASSET BASED TERMS.
Without limiting Bank's other rights and remedies, if an Event of
Default occurs and is continuing, the provisions of Exhibit E hereto (the "Asset
Based Terms") shall be effective, upon written notice by Bank to the Borrower.
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by fax to the addresses set forth at the beginning of this
Agreement and, in the case of notices by fax, to the latest fax number a party
as for the other party. A party may change its notice address by giving the
other party written notice.
-11-
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Xxxxx County, California.
BORROWER AND BANK EACH 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 BANK AND
BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF BANK OR BORROWER OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH BANK OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE. THIS WAIVER IS A MATERIAL INDUCEMENT
FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS
WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other Person in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
-12-
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans (provided, however, Bank shall use
commercially reasonable efforts in obtaining such prospective transferee or
purchasers agreement of the terms of this provision), (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other reasonable costs and expenses incurred, in
addition to any other relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" is defined on Exhibit A hereto.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" means (i) any of Borrower's officers or directors, and if
Borrower is a limited liability company, Borrower's managers and members, and if
Borrower is a partnership, Borrower's general and limited partners; (ii) a
Person that, directly or indirectly, owns or controls, is controlled by or is
under common control with Borrower, and any of such person's officers or
directors, and if such person is a limited liability company, such person's
managers and members, and if such person is a partnership, such person's general
and limited partners.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings), or otherwise relating to Borrower
or the Loan Documents, including, but not limited to, any reasonable attorneys'
fees and costs Bank incurs in order to do the following: obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
Bank's 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 bankruptcy claim, third-party claim, or other claim; protect, obtain
possession of, lease, dispose of, or otherwise enforce Bank's security interest
in, the Collateral; and otherwise represent Bank in any litigation relating to
Borrower.
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BORROWING BASE" is as set forth in the Schedule.
-13-
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code, in effect from time
to time.
"COLLATERAL" is the property described on Exhibit A.
"COMMITTED REVOLVING LINE" is defined in the Schedule.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CREDIT EXTENSION" is each Advance, Letter of Credit, Exchange
Contract, or any other extension of credit by Bank for Borrower's benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5;
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 25% or more of whose Accounts have
not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts
that exceed that percentage;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States or Canada (unless supported by
foreign credit insurance or a letter of credit in form and substance
acceptable to Bank in its good faith business judgment);
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on
approval, xxxx and hold, or other terms if account debtor's payment may
be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes
any claim or Bank in its good faith business judgment believes there
may be a basis for dispute (but only up to the disputed or
-14-
claimed amount), or if the Account Debtor is subject to an Insolvency
Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"ELIGIBLE INVENTORY" is Inventory which Bank, in its good faith
business judgment, deems eligible for borrowing. Without limiting the fact that
the determination of which Inventory is eligible for borrowing is a matter of
Bank's good faith business judgment, the following are the minimum requirements
for Inventory to be Eligible Inventory: the Inventory must (i) consist of
finished goods, in good, new and salable condition, not be perishable, not be
obsolete or unmerchantable, and not be comprised of raw materials, work in
process, packaging materials or supplies; (ii) meet all applicable governmental
standards; (iii) have been manufactured in compliance with the Fair Labor
Standards Act; (iv) conform in all respects to the warranties and
representations set forth in this Agreement; (v) be at all times subject to
Bank's duly perfected, first priority security interest; and (vi) be situated at
one of Borrower's locations in Memphis, Tennessee, San Diego, California or
Boise, Idaho.
"EQUIPMENT" is defined on Exhibit A hereto.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles.
"GUARANTOR" is any present or future guarantor of any of the
Obligations, including Cutting Edge Software, Inc..
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is defined on Exhibit A hereto
"INVENTORY" is defined on Exhibit A hereto.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LETTER OF CREDIT" is defined in Section 2.1.2.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is any of the following: (i) a material
adverse change in the business, operations, or condition (financial or
otherwise) of the Borrower, or (ii) a material impairment of the prospect of
repayment of any portion of the Obligations; or (iii) a material impairment of
the value or priority of Bank's security interests in the Collateral.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.
-15-
"PATENTS" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on Schedule 2;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness secured by Permitted Liens; and
(f) Indebtedness under capitalized equipment leases entered into after
the date hereof in a total amount not to exceed $1,000,000.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on Schedule 2 and existing on the Closing Date;
and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Xxxxx'x Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on Schedule 2 or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Nonexclusive licenses and non-exclusive sublicenses granted by
Borrower in the ordinary course of its business, and exclusive licenses granted
by Borrower in the ordinary course of its business within the limitations set
forth in Section 7.1 above;
(e) Leases or subleases granted in the ordinary course of Borrower's
business, including in connection with Borrower's leased premises or leased
property;
(f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.
-16-
"REPRESENTATIONS" are the written Representations and Warranties of
Borrower dated July 25, 2002.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is set forth on the Schedule.
"SCHEDULE" is Schedule 1 to this Agreement.
"SCHEDULE 2" is Schedule 2 to this Agreement.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
BORROWER: BANK:
Mobility Electronics, Inc. Silicon Valley Bank
By: /s/ Xxxx X. Xxxxxxxxx By
---------------------------------------------- ----------------------------------------------
Name: Xxxx X. Xxxxxxxxx Title
Title: Chief Financial Officer and Executive Vice -------------------------------------------
President
BORROWER: BORROWER:
Portsmith, Inc. Magma, Inc.
By: /s/ Xxxx X. Xxxxxxxxx By: /s/ Xxxx X. Xxxxxxxxx
---------------------------------------------- ----------------------------------------------
Name: Xxxx X. Xxxxxxxxx Name: Xxxx X. Xxxxxxxxx
Title: Vice President Title: Vice President
-----------------------------------------------
-17-
EXHIBIT A
Collateral
"Collateral" means of all of Borrower's right, title and interest in
and to the following whether owned now or hereafter acquired or arising, and
wherever located: all Accounts; all Inventory; all Equipment; all Deposit
Accounts; all General Intangibles (including without limitation all Intellectual
Property); all Investment Property; all Other Property; and any and all claims,
rights and interests in any of the foregoing, and all guaranties and security
for any of the foregoing, and all substitutions and replacements for, additions,
accessions, attachments, accessories, and improvements to, and proceeds
(including proceeds of any insurance policies, proceeds of proceeds and claims
against third parties) of, all of the foregoing, and all Borrower's books
relating to any of the foregoing.
As used in this Agreement and in this Exhibit, the following terms have the
following meanings:
"Accounts" means all present and future "accounts" as defined in the
Code in effect on the date hereof with such additions to such term as
may hereafter be made, and includes without limitation all accounts
receivable and other sums owing to Borrower.
"Deposit Accounts" means all present and future "deposit accounts" as
defined in the Code in effect on the date hereof with such additions to
such term as may hereafter be made, and includes without limitation all
general and special bank accounts, demand accounts, checking accounts,
savings accounts and certificates of deposit, whether maintained with
Bank or other institutions
"Equipment" means all present and future "equipment" as defined in the
Code in effect on the date hereof with such additions to such term as
may hereafter be made, and includes without limitation all machinery,
fixtures, goods, vehicles (including motor vehicles and trailers), and
any interest in any of the foregoing.
"General Intangibles" means all present and future "general
intangibles" as defined in the Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes
without limitation all Intellectual Property, payment intangibles,
royalties, contract rights, goodwill, franchise agreements, purchase
orders, customer lists, route lists, telephone numbers, domain names,
claims, income tax refunds, security and other deposits, options to
purchase or sell real or personal property, rights in all litigation
presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man,
property damage, and business interruption insurance), payments of
insurance and rights to payment of any kind.
"Intellectual Property" means all present and future (a) copyrights,
copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work
thereof, whether published or unpublished, (b) trade secret rights,
including all rights to unpatented inventions and know-how, and
confidential information; (c) mask work or similar rights available for
the protection of semiconductor chips; (d) patents, patent applications
and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade
styles, and trade names, whether or not any of the foregoing are
registered, and all applications to register and registrations of the
same and like protections, and the entire goodwill of the business of
Borrower connected with and symbolized by any such trademarks; (f)
computer software and computer software products; (g) designs and
design rights; (h) technology; (i) all claims for damages by way of
past, present and future infringement of any of the rights included
above; (j) all licenses or other rights to use any property or rights
of a type described above.
"Inventory" means all present and future "inventory" as defined in the
Code in effect on the date hereof with such additions to such term as
may hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials, work in
process and finished products, including without limitation such
inventory as is out of Borrower's custody
-1-
or possession or in transit and including any returned goods and any
documents of title representing any of the above.
"Investment Property" means all present and future investment
property, securities, stocks, bonds, debentures, debt securities,
partnership interests, limited liability company interests, options,
security entitlements, securities accounts, commodity contracts,
commodity accounts, and all financial assets held in any securities
account or otherwise, wherever located, and all other securities of
every kind, whether certificated or uncertificated,
"Other Property" means (i) the following as defined in the Code in
effect on the date hereof with such additions to such term as may
hereafter be made, and all rights relating thereto: all present and
future "commercial tort claims", "documents", "instruments",
"promissory notes", "chattel paper", "letters of credit",
"letter-of-credit rights", "fixtures", "farm products" and "money"; and
(ii) all other goods and personal property of every kind, tangible and
intangible, whether or not governed by the Code.
-2-
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.S.T.
FAX TO: DATE:
-----------------
--------------------------------------------------------------------------------
[ ] LOAN PAYMENT:
Client Name (Borrower)
-------------------
From Account # To Account #
------------------------ ---------------------
(Deposit Account #) (Loan Account #)
Principal $ and/or Interest $
------------------------ -----------------------
All Borrower's representation and warranties in the
Loan and Security
Agreement are true, correct and complete in all material respects to on the
date of the telephone transfer request for and advance, but those
representations and warranties expressly referring to another date shall be
true, correct and complete in all material respects as of the date:
AUTHORIZED SIGNATURE: Phone Number:
----------------------- -----------------
--------------------------------------------------------------------------------
[ ] LOAN ADVANCE:
COMPLETE OUTGOING WIRE REQUEST SECTION BELOW IF ALL OR A PORTION OF THE
FUNDS FROM THIS LOAN ADVANCE ARE FOR AN OUTGOING WIRE.
From Account # To Account #
------------------------ ---------------------
(Loan Account #) (Deposit Account #)
Amount of Advance $
---------------------
All Borrower's representation and warranties in the
Loan and Security
Agreement are true, correct and complete in all material respects to on the
date of the telephone transfer request for and advance, but those
representations and warranties expressly referring to another date shall be
true, correct and complete in all material respects as of the date:
AUTHORIZED SIGNATURE: Phone Number:
----------------------- -----------------
--------------------------------------------------------------------------------
OUTGOING WIRE REQUEST
COMPLETE ONLY IF ALL OR A PORTION OF FUNDS FROM THE LOAN ADVANCE ABOVE ARE
TO BE WIRED.
Deadline for same day processing is 12:00 pm, P.S.T.
Beneficiary Name: Amount of Wire: $
-------------------------------- ---------------------------
Beneficiary Bank: Account Number:
-------------------------------- ----------------------------
City and Sate:
-----------------------------------
Beneficiary Bank Transit (ABA) #: __ __ __ __ __ __ __ __ Beneficiary Bank Code (Swift, Sort, Chip, etc.):
-----------
(FOR INTERNATIONAL WIRE ONLY)
Intermediary Bank: Transit (ABA) #:
------------------------------- ------------------------------------
For Further Credit to:
-----------------------------------------------------------------------------------------
Special Instruction:
-------------------------------------------------------------------------------------------
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in
accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer
service(s), which agreements(s) were previously received and executed by me (us).
Authorized Signature: 2nd Signature (If Required):
------------------------------- ---------------------
Print Name/Title: Print Name/Title:
------------------------------------ ---------------------------------
Telephone # Telephone #
----------------------------------------- --------------------------------------
EXHIBIT C
BORROWING BASE CERTIFICATE
--------------------------------------------------------------------------------
EXHIBIT D
COMPLIANCE CERTIFICATE
EXHIBIT E
ASSET BASED TERMS
The following are the "Asset Based Terms":
(1) SCHEDULES AND DOCUMENTS RELATING TO ACCOUNTS. Borrower shall
deliver to Bank transaction reports, Advance requests, schedules of Accounts,
and schedules of collections, all on Bank's standard forms; provided, however,
that Borrower's failure to execute and deliver the same shall not affect or
limit Bank's security interest and other rights in all of Borrower's Accounts.
If requested by Bank, Borrower shall furnish Bank with copies (or, at Bank's
request, originals) of all contracts, orders, invoices, and other similar
documents, and all 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 Accounts, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to Bank an aged accounts receivable trial
balance in such form and at such intervals as Bank shall request. In addition,
Borrower shall deliver to Bank the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Accounts, immediately upon receipt thereof and in the same form as
received, with all necessary endorsements, all of which shall be with recourse.
Borrower shall also provide Bank with copies of all credit memos from time to
time on request by Bank.
(2) NOTIFICATION. Bank or its designee may, at any time, notify Account
Debtors that it has a security interest in the Accounts and that payment on the
Accounts is to be made directly to the Bank.
(3) LOAN REQUESTS. Without limiting the right of Bank to cease making
Advances on an Event of Default, requests for Advances shall be in writing and
shall be accompanied by a current Transaction Report on Bank's standard form.
(4) RESERVES. Without limiting the right of Bank to cease making
Advances on an Event of Default, Bank shall have the right, from time to time,
to establish and deduct the following reserves from the amount of Advances,
Letters of Credit and other financial accommodations under the lending
formula(s) provided in the Schedule: (a) reserves to reflect events, conditions,
contingencies or risks which, as determined by Bank in good faith, do or may
affect adversely (i) the Collateral or any other property which is security for
the Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets, business or prospects of Borrower,
or (iii) the security interests and other rights of Bank in the Collateral
(including the enforceability, perfection and priority thereof); and (b)
reserves to reflect Bank's good faith belief that any collateral report or
financial information furnished by or on behalf of Borrower to Bank is or may
have been incomplete, inaccurate or misleading in any material respect.
(5) CURE PERIODS. The cure periods set forth in the Loan Agreement
shall be modified as follows: the cure period in Section 8.3 of the Loan
Agreement shall be five Business Days rather than 30 days and there shall be no
cure period in Section 8.1 of the Loan Agreement.
Schedule 2 to
Loan and Security Agreement
Deposit Accounts at Silicon Valley Bank:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Liens existing on the Closing Date and disclosed to and accepted by Bank in
writing:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investments existing on the Closing Date and disclosed to and accepted by Bank
in writing:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Subordinated Debt:
Indebtedness on the Closing Date and disclosed to and consented to by Bank in
writing:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Except as shown below, there are no actions or proceedings pending or, to the
knowledge of Borrower's Responsible Officers and legal counsel, threatened by or
against Borrower or any Subsidiary, which could result in damages or costs to
Borrower or any Subsidiary of $100,000 or more, or in which an adverse decision
could reasonably be expected to cause a Material Adverse Change (attach
additional comments, if needed):
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
---------------------------------
SCHEDULE 1 TO
LOAN AND SECURITY AGREEMENT
BORROWER: MOBILITY ELECTRONICS, INC.
PORTSMITH, INC.
MAGMA, INC.
DATE: SEPTEMBER 27, 2002
This Schedule forms an integral part of the
Loan and Security Agreement (the
"Loan Agreement") between Silicon Valley Bank ("Bank") and the above-borrowers
(jointly and severally "Borrower") of even date. (Capitalized terms used herein,
which are not defined, shall have the meanings set forth in the Loan Agreement.)
================================================================================
1. CREDIT LIMIT
(Section 2.1.1): 1.1 Subject to the provisions of Section 1.2 below,
the Credit Limit shall be an amount not to exceed the
lesser of $10,000,000 at any one time outstanding
(the "Committed Revolving Line") or the sum of (a)
and (b) below (the "Borrowing Base"):
(a) 80% of the amount of Borrower's Eligible
Accounts minus the amount of all outstanding
Letters of Credit (including drawn but
unreimbursed Letters of Credit), plus
(b) the least of (1), (2) or (3) below:
(1) 25% (the "Inventory Advance Rate")
of the value of Borrower's Eligible
Inventory (as defined in Section
13.1 of the Loan Agreement),
calculated at the lower of cost or
market value and determined on a
first-in, first-out basis, or
(2) $3,000,000 (the "Inventory
Sublimit"), or
(3) 25% (the "Inventory Percentage
Limit") of the total Advances
outstanding.
1.2 Notwithstanding the provisions of Section 1.1:
(a) the amount of the total outstanding Advances
and oustanding Letters of Credit (including drawn
but unreimbursed Letters of Credit) shall be
limited to a total of $5,000,000 unless Borrower
converts to the Asset Based Terms, in accordance
with Section 5 below, and
-1-
(b) while the Asset Based Terms are in effect:
(1) the Inventory Sublimit shall be
$2,000,000,
(2) the Inventory Percentage Limit
shall be 20%, and
(3) the Inventory Advance Rate may be
reduced to such amount as Bank
shall determine in its good faith
business judgment, until Bank
receives an appraisal of the forced
liquidation value of the Inventory
acceptable to Bank. Based on said
appraisal, Bank may adjust the
Inventory Advance Rate to such
amount as it shall determine in its
good faith business judgment.
In the event the Asset Based Terms go into
effect because of a breach of one of the
financial covenants set forth in Section
5.1(a) or (b) below, and as a result of the
reduction in the Inventory Sublimit or the
Inventory Percentage Limit under Section 1.2
(b) (1) or (2) above the outstanding
Advances with respect to Inventory exceed
the limit set forth in Section 1.1(b) above,
then Borrower shall have 15 days from the
date the Asset Based Terms go into effect to
repay such excess to Bank.
1.3 Advances will be made separately to each
Borrower, based on the Eligible Accounts and Eligible
Inventory of each Borrower. Accounts and Inventory of
Portsmith, Inc. and Magma, Inc. will not be
"Eligible" unless and until they are approved by Bank
in writing in its sole discretion.
LETTER OF CREDIT SUBLIMIT
(SECTION 2.1.2): $1,000,000
Bank will issue or have issued Letters of Credit for
Borrower's account not exceeding (i) the lesser of
the Committed Revolving Line or the Borrowing Base,
minus (ii) the outstanding principal balance of the
Advances; however, the face amount of outstanding
Letters of Credit (including drawn but unreimbursed
Letters of Credit) may not exceed the Letter of
Credit Sublimit set forth above.
================================================================================
-2-
2. INTEREST.
INTEREST RATE
(Section 2.3(a)): A rate equal to the "Prime Rate" in effect from time
to time, plus 0.50% per annum, provided that:
(i) in the event the Borrower has a fiscal
quarter ending after the date hereof in
which its EBITDA is equal to or greater than
zero, then the interest rate shall be
reduced to the Prime Rate, provided that if,
in a subsequent fiscal quarter EBITDA is
less than zero, then the interest rate shall
return to the Prime Rate plus 0.50% per
annum; and
(ii) while the Asset Based Terms are in effect,
the interest rate shall be a rate equal to
the Prime Rate plus 1.25% per annum, except
that (A) in the event the Borrower has a
fiscal quarter ending after the date hereof
in which its EBITDA is equal to or greater
than zero, then the interest rate while the
Asset Based Terms are in effect shall be
equal to the Prime Rate plus 0.75% per
annum, and (B) if, in a subsequent fiscal
quarter EBITDA is less than zero, then the
interest rate shall return to the Prime Rate
plus 1.25% per annum
EBITDA is defined in Section 5.3 below. Changes in
the interest rate based on EBITDA as provided above
shall go into effect following Bank's review and
approval of Borrower's financial statements showing
Borrower's EBITDA will result in the interest rate
change.
================================================================================
3. FEES (Section 2.4(a)):
Facility Fee: $50,000, payable concurrently herewith. An additional
facility fee in the amount of $25,000 shall be due at
the date the Asset Based Terms go into effect, and an
additional facility fee of $25,000 shall be due on
each anniversary of such date thereafter. In the
event the Asset Based Terms are not in effect for a
full two year period, a pro rata portion of the
$25,000 fee paid on the anniversary of such date
shall be refunded to Borrower (but the maximum amount
to be refunded shall be 50% of said fee).
Unused Line Fee: In the event, in any fiscal quarter (or portion
thereof at the beginning and end of the term hereof),
the average daily principal balance of the Advances
outstanding during the month is less than
$10,000,000, Borrower shall pay Bank an unused line
fee (the "Unused Line Fee") in an amount equal to
0.25% per annum on the difference between $10,000,000
and the average daily principal balance of the
Advances outstanding during the month, computed on
the basis of a 360-day year, which Unused Line Fee
shall be computed and paid quarterly, in
-3-
arrears, on the first day of the following quarter.
If throughout a fiscal quarter the Asset Based Terms
are in effect, then the Unused Line Fee will not be
charged for such fiscal quarter.
Collateral Handling
Fee: During each month or portion thereof that the Asset
Based Terms are in effect, Borrower shall pay Bank a
collateral handling fee in an amount equal to $1,000
per month plus $300 per month for each Subsidiary of
Borrower whose assets are included in the Borrowing
Base, provided that the collateral handling fee will
be reduced by $500 for any month in which there are
no Advances outstanding during any portion of the
month.
Termination Fee:
(Sections 2.1.1(d)
and 9.1(b)): None, except that if the Asset Based Terms are in
effect, the Termination Fee shall be $100,000, unless
the loan facility provided by this Agreement is
replaced with another loan facility from Bank.
================================================================================
4. REVOLVING MATURITY
DATE
(Section 13.1): July 31, 2004.
================================================================================
5. FINANCIAL COVENANTS
(Section 6.7):
5.1 ASSET BASED TERMS
NOT IN EFFECT. During all periods in which the Asset Based Terms are
not in effect, Parent (on a consolidated basis) shall
comply with each of the following covenants.
Compliance shall be determined as of the end of each
month, except as specifically otherwise provided
below:
(a) Adjusted
Quick Ratio: Parent (on a consolidated basis) shall maintain a
ratio of
(i) the total of unrestricted cash, cash equivalents,
net billed Accounts (net of allowance for doubtful
Accounts) and investments with maturities of less
than 12 months,
TO
(ii) the total of current liabilities, outstanding
Advances and outstanding Letters of Credit,
of not less than 1.25 TO 1.
-4-
(b) EBITDA: Parent (on a consolidated basis) shall maintain
EBITDA of not less than the following amounts for the
following fiscal quarters:
Quarter Ended Minimum EBITDA
------------- --------------
June 30, 2002 ($2,600,000)
September 30, 2002 ($2,200,000)
December 31, 2002 ($750,000)
March 30, 2003 ($250,000)
June 30, 2003 and quarterly thereafter 0
(c) Minimum Tangible
Net Worth: Parent (on a consolidated basis) shall maintain a
Tangible Net Worth of not less than $13,000,000 (the
"Minimum Tangible Net Worth"), as of the end of each
month, provided that, at the end of each fiscal
quarter of the Borrower, commencing with the fiscal
quarter ending September 30, 2002, the Minimum
Tangible Net Worth requirement shall be increased by
100% of the net income of the Parent (on a
consolidated basis) for such fiscal quarter, but the
Minimum Tangible Net Worth requirement shall not
increase to greater than $17,000,000. Said increased
Minimum Tangible Net Worth requirement shall be
effective as of the end of such fiscal quarter, and
shall continue in effect thereafter. In no event
shall the Minimum Tangible Net Worth requirement be
decreased.
5.2 ASSET BASED
TERMS IN EFFECT. During all periods in which the Asset Based Terms are
in effect, Parent (on a consolidated basis) shall
comply with the following covenant as of the end of
each month:
Minimum Tangible
Net Worth: Parent (on a consolidated basis) shall maintain a
Tangible Net Worth of not less than $13,000,000 (the
"Minimum Tangible Net Worth"), as of the end of each
month, provided that, at the end of each fiscal
quarter of the Borrower, commencing with the fiscal
quarter ending September 30, 2002, the Minimum
Tangible Net Worth requirement shall be increased by
100% of the net income of the Parent (on a
consolidated basis) for such fiscal quarter, but the
Minimum Tangible Net Worth requirement shall not
increase to greater than $17,000,000. Said increased
Minimum Tangible Net Worth requirement shall be
effective as of the end of such fiscal quarter, and
shall continue in effect thereafter. In no event
shall the Minimum Tangible Net Worth requirement be
decreased.
-5-
5.3 DEFINITIONS. For purposes of this Agreement, the following term
shall have the following meaning:
"Current assets", "current liabilities" and
"liabilities" shall have the meaning ascribed thereto
by GAAP.
"EBITDA" shall mean Parent's earnings before
interest, taxes, depreciation and other non-cash
amortization expenses and other non-cash expenses of
parent, all determined in accordance with GAAP, on a
consolidated basis.
"Tangible Net Worth" shall mean the excess of total
assets over total liabilities, of Parent (on a
consolidated basis) determined in accordance with
GAAP, with the following adjustments:
(A) there shall be excluded from assets: (i)
notes, accounts receivable and other
obligations owing to Borrower from its
officers or other Affiliates, and (ii) all
assets which would be classified as
intangible assets under GAAP, 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
Bank or by language in the instrument
evidencing the indebtedness which Bank
agrees in writing is acceptable to Bank in
its good faith business judgment.
================================================================================
6. ASSET BASED TERMS
6.1 "Asset Based Terms". As used herein, "Asset
Based Terms" means the terms set forth on
Exhibit E to the Loan Agreement. Terms of
this Agreement without the Asset Based Terms
are referred to as the "Non-Asset Based
Terms".
6.2 Voluntary Conversion to Asset Based Terms.
In the event the Parent wishes to have the
Asset Based Terms in effect, Parent may do
so by giving the Bank 30 days prior written
notice thereof, in order to permit the Bank
to make such reviews and audits as it shall
deem appropriate, and, in that event, such
audit shall not be subject to the
restriction on number of audits set forth
elsewhere in this Agreement.
-6-
6.3 Financial Covenant Breach. Without limiting
any of the other terms or provisions hereof,
the breach of one of the financial covenants
set forth in Section 5.1(a) or (b) above
shall not constitute an Event of Default,
but in the event there is a breach of any
such financial covenant, the Asset Based
Terms shall be effective upon written notice
from the Bank to the Parent. The breach of
the financial covenant set forth in Section
5.1(c) and 5.2 shall constitute an Event of
Default.
6.4 Conversion Back to Non-Asset Based Terms. In
the event the Asset Based Terms are in
effect, Parent may convert back to the
Non-Asset Based Terms by giving Bank 30 days
prior written notice thereof, provided that,
at the date the notice is given and at the
date the conversion is to go into effect (i)
no default or Event of Default has occurred
and is continuing, (ii) the total
outstanding principal balance of the
Advances and all outstanding Letters of
Credit does not exceed $5,000,000, (iii)
Parent has met the financial covenants set
forth in Section 5.1 above throughout the
most-recent ending fiscal quarter and
provides evidence of the same to the Bank
satisfactory to the Bank, and (iv) the Bank
approves the conversion to the Non-Asset
Based Terms in its good faith business
judgment.
================================================================================
7. ADDITIONAL PROVISIONS.
7.1 Intellectual Property. Borrower represents
that all Intellectual Property of the
Borrower is listed on Exhibit 7.1 hereto and
is owned by the Borrower shown on said
Exhibit.
7.2 Tennessee Location. In addition to the
Borrower's locations set forth in the
Representations, Borrower has a location at
0000 X. Xxxxxx Xxxxx, Xxxxxxx, Xxxxxxxxx
00000.
7.3 UCC Termination--Magma. Without limiting the
other provisions of this Loan Agreement,
Borrower acknowledges that no Loans will be
made to Magma, Inc. until the UCC-1
Financing Statement with respect to Magma,
Inc. filed in the Office of the California
Secretary of State (File No. 0028860796) in
favor of Xxxxx Xxxxxxxxxx, Xx Xxxxxxxx, Xxxx
Xxxxx, Xxxx Xxxxxxxxx, and Xxxxx Xxxxxxxxxxx
(the "Magma UCC Filing") is terminated of
record and evidence of the same is presented
to Bank which is reasonably satisfactory to
Bank. Borrower represents and warrants that
there is no indebtedness outstanding, and
there will be no indebtedness outstanding,
which is secured by any security interest
perfected by the Magma Filing, and Borrower
shall cause the Magma filing to be
terminated of record and provide evidence of
the same to Bank
-7-
within 60 days after the date hereof, which
is reasonably satisfactory to Bank.
7.4 UCC Terminations--Other Lenders. Without
limiting the other provisions of this Loan
Agreement, Borrower acknowledges that no
Loans will be made hereunder until all UCC-1
Financing Statements in favor of Bank of
America (and its predecessors in interest)
and all UCC-1 Financing Statements in favor
of Sirrom Capital Corporation with respect
to any and all Borrowers have been
terminated of record and evidence of the
same has been provided to Bank which is
reasonably satisfactory to Bank.
7.5 Pledge of Shares of Stock of Portsmith.
Borrower represents and warrants to Bank
that (i) the outstanding shares of stock of
Portsmith, Inc. have been pledged to the
former shareholders of Portsmith, Inc.
pursuant to a Pledge Agreement dated as of
February 20, 2002, a true and correct copy
of which has been provided to Bank, (ii)
said pledge secures certain earnout
obligations owing to said shareholders (the
"Earnout Obligations") under Article II of
the Agreement and Plan of Merger dated as of
February 1, 2002, a true and correct copy of
which has been provided to Bank, and (iii)
no Event of Default (as defined in said
Pledge Agreement) has occurred. Borrower
agrees to pay and perform when due all Earn
Out Obligations, and agrees that the giving
of a notice of an Event of Default to the
Depository under the Pledge Agreement will
constitute an Event of Default under this
Loan Agreement. Borrower shall cause the
Depository to agree in writing to provide to
Bank a copy of any notice of any Event of
Default given to the Depository under said
Pledge Agreement, within two Business Days
after the date the same is received by said
Depository. Bank agrees that the security
interest created by said Pledge Agreement is
a Permitted Lien.
-8-
Borrower: Bank:
Mobility Electronics, Inc. SILICON VALLEY BANK
By /s/ Xxxx X. Xxxxxxxxx By
--------------------------- ---------------------------
President or Vice President Title
------------------------
Borrower: Borrower:
PORTSMITH, INC. MAGMA, INC.
By /s/ Xxxx X. Xxxxxxxxx By /s/ Xxxx X. Xxxxxxxxx
--------------------------- ---------------------------
President or Vice President President or Vice President
-9-
