EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of March 16,
2005, between SILICON VALLEY BANK, a California chartered bank, with its
principal place of business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000
and with a loan production office located at One Newton Executive Park, Suite
200, 0000 Xxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000 ("Bank") and ZOOM
TELEPHONICS, INC., a Delaware corporation ("Borrower"), provides the terms on
which Bank shall lend to Borrower and Borrower shall repay Bank. The parties
agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document. Capitalized terms in this Agreement shall have the
meanings set forth in Article 13. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meaning provided by the Code, to the
extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank
the unpaid principal amount of all Credit Extensions and interest on the unpaid
principal amount of the Credit Extensions as and when due in accordance with
this Agreement.
2.1.1 Revolving Advances.
(a) Availability. After the Initial Audit, Bank shall make Advances not
exceeding (i) the lesser of (A) the Revolving Line or (B) the Borrowing Base
minus (ii) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), minus (iii) the FX Reserve, and minus (iv) the
aggregate outstanding Advances hereunder (including any Cash Management
Services). Amounts borrowed under this Section may be repaid and reborrowed
during the term of this Agreement.
(b) Borrowing Procedure. To obtain an Advance, Borrower must notify Bank
(which notice shall be irrevocable) by facsimile or telephone by 3:00 p.m.
Eastern time on the Business Day the Advance is to be made. If such notification
is by telephone, Borrower must promptly confirm the notification by delivering
to Bank a completed Payment/Advance Form in the form attached as Exhibit B. Bank
shall 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
shall indemnify Bank for any loss Bank suffers due to such reliance.
(c) Interest Rate. The principal amounts outstanding under the Revolving
Line shall accrue interest at a per annum rate equal to the aggregate of the
Prime Rate and one percent (1.0%); provided, however, such rate shall reduce to
a per annum rate equal to the aggregate of the Prime Rate and one-half of one
percent (0.50%) after the occurrence of the Profitability Event, to be effective
ten (10) Business Days after Borrower has provided to Bank satisfactory evidence
of same for such period, which interest shall be payable monthly. In addition to
the foregoing, if at any time Borrower is unable to provide Bank with
satisfactory evidence that the Profitability Event has occurred for a period of
two (2) consecutive quarters, the rate shall increase to a per annum rate equal
to the aggregate of the Prime Rate and one percent (1.0%).
(d) Termination; Repayment. The Revolving Line terminates on the Revolving
Line Maturity Date, when the principal amount of all Advances, the unpaid
interest thereon, and all other Obligations relating to the Revolving Line shall
be immediately due and payable.
2.1.2 Letters of Credit Sublimit.
(a) Bank shall issue or have issued Letters of Credit for Borrower's
account not exceeding (i) the lesser of the Revolving Line or the Borrowing Base
minus (ii) the outstanding principal balance of any Advances (including any Cash
Management Services), minus (iii) the amount of all Letters of Credit (including
drawn but unreimbursed Letters of Credit), plus an amount equal to any Letter of
Credit Reserves. The face amount of outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may
not exceed $2,000,000.00. Borrower's Letter of Credit reimbursement obligation
shall be secured by cash on terms acceptable to Bank on and after (i) the
Maturity Date, or (ii) the occurrence of an Event of Default hereunder. All
Letters of Credit shall be in form and substance acceptable to Bank in its sole
discretion, and shall be subject to the terms and conditions of Bank's standard
Application and Letter of Credit Agreement ("Letter of Credit Application").
Borrower agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request.
(b) The obligation of Borrower to immediately reimburse Bank for drawings
made under Letters of Credit shall be absolute, unconditional and irrevocable,
and shall be performed strictly in accordance with the terms of this Agreement
and such Letters of Credit, and such Letter of Credit Application. Borrower
shall indemnify, defend, protect, and hold Bank harmless from any loss, cost,
expense or liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any Letters of Credit, except losses,
costs, expenses, and liabilities caused by Bank's gross negligence or willful
misconduct.
(c) Borrower may request that Bank issue a Letter of Credit payable in a
currency other than United States Dollars. If a demand for payment is made under
any such Letter of Credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus fees and charges in
connection therewith such as wire, cable, SWIFT or similar charges) in United
States currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for transfer to the country of
which it is the currency.
(d) Upon the issuance of any letter of credit payable in a currency other
than United States Dollars, Bank shall create a reserve (the "Letter of Credit
Reserve") under the Revolving Line for letters of credit against fluctuations in
currency exchange rates, in an amount equal to ten percent (10%) of the face
amount of such letter of credit. The amount of such reserve may be amended by
Bank from time to time to account for fluctuations in the exchange rate. The
availability of funds under the Revolving Line shall be reduced by the amount of
such reserve for as long as such letter of credit remains outstanding.
2.1.3 Foreign Exchange Sublimit. The Borrower may enter into foreign
exchange forward contracts with the Bank under which Borrower commits to
purchase from or sell to Bank a set amount of foreign currency more than one (1)
business day after the contract date (the "FX Forward Contract"). Bank shall
subtract 10% of each outstanding FX Forward Contract (the "F/X Reserve") from
the foreign exchange sublimit, which sublimit is a maximum of $2,000,000.00. The
total FX Forward Contracts at any one time may not exceed 10 times the amount of
the FX Reserve. Bank may terminate the FX Forward Contracts if an Event of
Default occurs. The Obligations of Borrower relating to this section may not
exceed: (i) the lesser of (A) the Revolving Line, or (B) the Borrowing Base,
minus (ii) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), minus (iii) the FX Reserve, and minus (iv) the
aggregate outstanding Advances hereunder (including any Cash Management
Services).
2.1.4 Cash Management Services Sublimit. Borrower may use up to
$2,000,000.00 for the Bank's Cash Management Services (the "Cash Management
Services Sublimit"), which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services identified in the
various cash management services agreements related to such Cash Management
Services (the "Cash Management Services"). Such aggregate amounts utilized under
the Cash Management Services Sublimit shall at all times reduce the amount
otherwise available for Credit Extensions under the Revolving Line. Any amounts
Bank pays on behalf of Borrower or any amounts that are not paid by Borrower for
any Cash Management Services will be treated as Advances under the Revolving
Line and will accrue interest at the interest rate applicable to Advances.
2.1.5 Undisbursed Credit Extensions. The Bank's obligation to lend the
undisbursed portion of the Obligations shall terminate if there has been a
material adverse change in the general affairs, management, results of
operation, condition (financial or otherwise) or the prospect of repayment of
the Obligations.
2.2 Overadvances. If Borrower's Obligations under Sections 2.1.1, 2.1.2,
2.1.3 and 2.1.4 exceed the lesser of either (i) the Revolving Line or (ii) the
Borrowing Base, Borrower must immediately pay in cash to Bank such excess.
2.3 Interest Rate.
(a) Default Rate. After an Event of Default, Obligations shall bear
interest at five percent (5.0%) above the rate effective immediately before the
Event of Default.
(b) Adjustment to Interest Rate. The applicable interest rate hereunder
shall increase or decrease when the Prime Rate changes.
(c) 360-Day Year. Interest is computed on the basis of a 360 day year for
the actual number of days elapsed.
(d) Debit of Accounts. Bank may debit any of Borrower's deposit or
operating accounts, including Account Number 330456679, for principal and
interest payments when due, or any other amounts Borrower owes Bank, when due.
Bank shall promptly notify Borrower after it debits Borrower's accounts. These
debits shall not constitute a set-off.
(e) Payments. Interest is payable monthly on the first calendar day of each
month. Payments received after 12:00 noon Eastern 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, as applicable, shall continue to accrue.
2.4 Fees. Borrower shall pay to Bank:
(a) Commitment Fee. A fully earned, non-refundable commitment fee of
$10,000.00, $5,000.00 of which has previously been paid, and $5,000.00 of which
is due and payable on the Closing Date; and
(b) Letter of Credit Fee. The Borrower shall pay the Bank's customary fees
and expenses for the issuance or renewal of Letters of Credit, including,
without limitation, a Letter of Credit Fee of one and one quarter of one percent
(1.25%) per annum of the face amount of each Letter of Credit issued, upon the
issuance or renewal of such Letter of Credit by the Bank; and
(c) Unused Revolving Line Facility Fee. In addition to the foregoing, as
compensation for the Bank's maintenance of sufficient funds available for such
purpose, the Bank shall have earned a fee (the "Unused Revolving Line Facility
Fee"), which fee shall be paid quarterly, in arrears, on a calendar year basis,
in an amount equal to one quarter of one percent (0.25%) per annum of the
average unused portion of the Revolving Line, as determined by the Bank.
Sublimits under Section 2.1.3 and Section 2.1.4 shall not be included in the
calculation of the Unused Revolving Line Facility Fee. The Borrower shall not be
entitled to any credit, rebate or repayment of any Unused Revolving Line
Facility Fee previously earned by the Bank pursuant to this Section
notwithstanding any termination of the within Agreement, or suspension or
termination of the Bank's obligation to make loans and advances hereunder; and
(d) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses) incurred through and after the Closing Date, when due.
3 CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The Bank's obligation
to make the initial Credit Extension is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, such
documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate, including, without limitation, subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to articles,
bylaws, incumbency and resolutions authorizing the execution and delivery of
this Agreement;
(c) Perfection Certificate(s) by Borrower;
(d) landlord's waiver;
(e) a legal opinion of Borrower's counsel (authority and enforceability),
in form and substance acceptable to Bank;
(f) guaranties by the Guarantor(s);
(g) Pledge Agreement by Guarantor;
(h) Stock Certificate(s) representing Guarantor's stock in Borrower;
(i) insurance certificate;
(j) payment of the fees and Bank Expenses then due specified in Section 2.4
hereof;
(k) Certificate of Foreign Qualification (if applicable);
(l) Certificate of Good Standing/Legal Existence; and
(m) such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.
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 shall be true in all
material respects on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default shall have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties in Section 5 remain true in all material respects.
4 CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations and the performance of
each of Borrower's duties under the Loan Documents, a continuing security
interest in, and pledges and assigns to the Bank, the Collateral, wherever
located, whether now owned or hereafter acquired or arising, and all proceeds
and products thereof. Borrower warrants and represents that the security
interest granted herein shall be a first priority security interest in the
Collateral.
Except as noted on the Perfection Certificate, Borrower is not a party to,
nor is bound by, any material license (other than over the counter software that
is commercially available to the public) or other material agreement with
respect to which the Borrower is the licensee that prohibits or otherwise
restricts Borrower from granting a security interest in Borrower's interest in
such license or agreement or any other property. Borrower shall provide written
notice to Bank within ten (10) days of entering or becoming bound by, any such
license or agreement which is reasonably likely to have a material impact on
Borrower's business or financial condition. Borrower shall take such steps as
Bank reasonably requests to obtain the consent of, authorization by or waiver
by, any person whose consent or waiver is necessary for all such licenses or
contract rights to be deemed "Collateral" and for Bank to have a security
interest in it that might otherwise be restricted or prohibited by law or by the
terms of any such license or agreement, whether now existing or entered into in
the future.
If the Agreement is terminated, Bank's lien and security interest in the
Collateral shall continue until Borrower fully satisfies its Obligations. If
Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Bank.
4.2 Authorization to File Financing Statements. Borrower hereby authorizes
Bank to file financing statements, without notice to Borrower, with all
appropriate jurisdictions in order to perfect or protect Bank's interest or
rights hereunder, including a notice that any disposition of the Collateral, by
either the Borrower or any other Person, shall be deemed to violate the rights
of the Bank under the Code.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization. Borrower and each Subsidiary is
duly existing and in good standing in its 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. In connection with this Agreement, the Borrower
delivered to the Bank a certificate signed by the Borrower and entitled
"Perfection Certificate". The Borrower represents and warrants to the Bank that:
(a) the Borrower's exact legal name is that indicated on the Perfection
Certificate and on the signature page hereof; and (b) the Borrower is an
organization of the type, and is organized in the jurisdiction, set forth in the
Perfection Certificate; and (c) the Perfection Certificate accurately sets forth
the Borrower's organizational identification number or accurately states that
the Borrower has none; and (d) the Perfection Certificate accurately sets forth
the Borrower's place of business, or, if more than one, its chief executive
office as well as the Borrower's mailing address if different, and (e) all other
information set forth on the Perfection Certificate pertaining to the Borrower
is accurate and complete. If the Borrower does not now have an organizational
identification number, but later obtains one, Borrower shall forthwith notify
the Bank of such organizational identification number.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's organizational documents,
nor constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which or by
which it is bound 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 deposit account, other than the deposit
accounts with Bank and deposit accounts described in the Perfection Certificate
delivered to the Bank in connection herewith. The Accounts are bona fide,
existing obligations, and the service or property has been performed or
delivered to the account debtor or its agent for immediate shipment to and
unconditional acceptance by the account debtor. The Collateral is not in the
possession of any third party bailee (such as a warehouse). Except as hereafter
disclosed to the Bank in writing by Borrower, none of the components of the
Collateral shall be maintained at locations other than as provided in the
Perfection Certificate. In the event that Borrower, after the date hereof,
intends to store or otherwise deliver any portion of the Collateral to a bailee,
then Borrower will first receive the written consent of Bank and such bailee
must acknowledge in writing that the bailee is holding such Collateral for the
benefit of Bank. Borrower has no knowledge of any actual or imminent Insolvency
Proceeding of any account debtor whose accounts are an 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 non-exclusive licenses granted to its
customers in the ordinary course of business. Each Patent is 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 Perfection Certificate, there are no
actions or proceedings pending or, to the knowledge of Borrower's Responsible
Officers or legal counsel, threatened by or against Borrower or any Subsidiary
in which an adverse decision could reasonably be expected to cause a Material
Adverse Change.
5.4 No Material Deviation 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 Solvency. The fair salable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions in
this Agreement; and Borrower is able to pay its debts (including trade debts) as
they mature.
5.6 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. 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 make
such declarations, notices or filings would not reasonably be expected to cause
a Material Adverse Change.
5.7 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities except for Permitted Investments.
5.8 Full Disclosure. No written representation, warranty or other statement
of Borrower in any certificate or written statement given to Bank taken together
with all such written certificates and written statements given to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained in the certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not
viewed as facts and that actual results during the period or periods covered by
such projections and forecasts may differ from the projected or forecasted
results).
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 Government Compliance. Borrower shall 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 have a material adverse effect on
Borrower's business or operations. Borrower shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which 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.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower shall deliver to Bank: (i) for monthly reporting, as soon as
available, but no later than thirty (30) days after the last day of each month
when Credit Extension are requested or Obligations are outstanding, 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) for quarterly and annual reporting, within
five (5) days of filing, copies of all statements, reports and notices made
available to Borrower's security holders or to any holders of Subordinated Debt
and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and
Exchange Commission which reports shall be deemed to have been delivered on the
date on which Borrower posts any such report or provides a link thereto on
Borrower's website on the Internet; (iii) 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 Two Hundred Fifty Thousand
Dollars ($250,000.00) or more; (iv) prompt notice of any material change in the
composition of the Intellectual Property, or the registration of any copyright,
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; and (v) other financial
information reasonably requested by Bank.
(b) Within thirty (30) days after the last day of each month when Credit
Extension are requested or Obligations are outstanding, Borrower shall deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
of Exhibit C, with aged listings of accounts receivable (by invoice date).
(c) Within (i) thirty (30) days after the last day of each month when
Credit Extension are requested or Obligations are outstanding, and (ii) five (5)
days of filing Borrower's form 10-Q and 10-K with the SEC, Borrower shall
deliver to Bank a Compliance Certificate signed by a Responsible Officer in the
form of Exhibit D.
(d) Allow Bank to audit Borrower's Collateral at Borrower's expense. Such
audits shall be conducted no more often than once every twelve (12) months
unless an Event of Default has occurred and is continuing. Notwithstanding the
foregoing, Borrower shall allow Bank to audit Borrower's Collateral at
Borrower's expense prior to the initial Credit Extension (the "Initial Audit").
If the results of the Initial Audit are not satisfactory to the Bank for any
reason, the Bank may, at its discretion, reduce the amount of the Revolving
Line, or not make any Credit Extensions hereunder, except pursuant to terms
satisfactory to Bank.
6.3 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from material defects. Returns and allowances between
Borrower and its account debtors shall follow Borrower's customary practices as
they exist at the Closing Date. Borrower must promptly notify Bank of all
returns, recoveries, disputes and claims that involve more than Two Hundred
Fifty Thousand Dollars ($250,000.00).
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, timely
payment of all material federal, state, and local taxes or assessments (other
than taxes and assessments which Borrower is contesting in good faith, with
adequate reserves maintained in accordance with GAAP) and will deliver to Bank,
on demand, appropriate certificates attesting to such payments.
6.5 Insurance. Borrower shall keep its business and the Collateral insured
for risks and in amounts, and as Bank may reasonably request. Insurance policies
shall be in a form, with companies, and in amounts that are satisfactory to
Bank. All property policies shall have a lender's loss payable endorsement
showing Bank as an additional loss payee and all liability policies shall show
the Bank as an additional insured and all policies shall provide that the
insurer must give Bank at least twenty (20) days notice before canceling its
policy. At Bank's request, Borrower shall deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy shall,
at Bank's option, be payable to Bank on account of the Obligations.
Notwithstanding the foregoing, so long as no Event of Default has occurred and
is continuing, Borrower shall have the option of applying the proceeds of any
casualty policy up to $25,000.00, in the aggregate, toward the replacement or
repair of destroyed or damaged property; provided that (i) any such replaced or
repaired property (a) shall be of equal or like value as the replaced or
repaired Collateral and (b) shall be deemed Collateral in which Bank has been
granted a first priority security interest and (ii) after the occurrence and
during the continuation of an Event of Default all proceeds payable under such
casualty policy shall, at the option of the Bank, be payable to Bank on account
of the Obligations. If Borrower fails to obtain insurance as required under
Section 6.5 or to pay any amount or furnish any required proof of payment to
third persons and the Bank, Bank may make all or part of such payment or obtain
such insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent.
6.6 Accounts.
(a) In order to permit the Bank to monitor the Borrower's financial
performance and condition, Borrower, and all Borrower's Subsidiaries, shall
maintain Borrower's, and such Subsidiaries, primary depository and operating
accounts with Bank. Borrower may maintain accounts at other financial
institutions, provided that Borrower maintains all of Borrower's, and all
Borrower's Subsidiaries', primary depository and operating accounts with Bank.
In addition, Borrower is permitted to maintain up to $600,000 in cash at
Banknorth, N.A., or, if not Banknorth, the assignee of the Borrower's commercial
mortgage loan (the "Mortgage Loan Deposit"). Any Guarantor shall maintain all
depository, operating and securities accounts with Bank, or SVB Securities.
(b) Borrower shall identify to Bank, in writing, any bank or securities
account opened by Borrower with any institution other than Bank. In addition,
for each such account that the Borrower or Guarantor at any time opens or
maintains, Borrower shall, at the Bank's request and option, pursuant to an
agreement in form and substance acceptable to the Bank, cause the depository
bank or securities intermediary to agree that such account is the collateral of
the Bank pursuant to the terms hereunder. The provisions of the previous
sentence shall not apply to: (i) accounts maintained at Xxxxxxxxxx Bank,
provided that the maximum aggregate amount of Borrower's accounts at Xxxxxxxxxx
Bank does not exceed Sixty Thousand Dollars ($60,000.00), and (ii) the Mortgage
Loan Deposit, and (iii) deposit accounts exclusively used for payroll, payroll
taxes and other employee wage and benefit payments to or for the benefit of the
Borrower's employees.
6.7 Financial Covenants. Borrower shall maintain at all times, to be tested
as of the last day of each quarter:
(a) Adjusted Quick Ratio. A ratio of Quick Assets to Current Liabilities
minus Deferred Revenue of greater than 2.0 to 1.0,
(b) Tangible Net Worth. A Tangible Net Worth of at least the sum of (i)
plus (ii) below:
(i) (A) $13,500,00.00, for the quarter ended June 30, 2004, (B)
$12,000,000.00, for the quarter ending September 30, 2004, (C) $11,500,000.00,
for the quarter ending Xxxxxxxx 00, 0000, (X) $10,500,000.00, for the quarter
ending March 31, 2005, and (E) 9,000,000.00, for the quarter ending June 30,
2005 and for each quarter thereafter.
(ii) Eighty percent (80%) of the amount of any equity issued by Borrower
after the Closing Date.
6.8 Further Assurances. Borrower shall 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 shall not do any of the following without the Bank's prior written
consent which shall not be unreasonably withheld.
7.1 Dispositions. Convey, sell, lease, transfer, assign or otherwise
dispose of (collectively a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, including the
Intellectual Property, except for Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment. The Borrower shall not
enter into an agreement with any Person other than the Bank which restricts the
subsequent granting of a security interest in the Intellectual Property.
7.2 Changes in Business, Ownership, Management or Business Locations.
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 have a material change in its ownership (other than by the sale of Borrower's
equity securities in a public offering or a private placement so long as
Borrower identifies to Bank the investors prior to the closing of the
investment), or management. Borrower shall not, without prior written notice to
Bank: (i) relocate its chief executive office, or add any new offices or
business locations, including warehouses (unless such new offices or business
locations contain less than Five Thousand Dollars ($5,000.00) in Borrower's
assets or property), or (ii) change its jurisdiction of organization, or (iii)
change its organizational structure or type, or (iv) change its legal name, or
(v) change any organizational number (if any) assigned by its jurisdiction of
organization.
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.
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,
including the Intellectual 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 herein. The Collateral may also be
subject to Permitted Liens.
7.6 Distributions; Investments. (i) Directly or indirectly acquire or own
any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock, except for repurchases of stock from former employees or
directors of Borrower under the terms of applicable repurchase agreements in an
aggregate amount not to exceed $50,000.00 in the aggregate in any fiscal year,
provided that no Event of Default has occurred, is continuing or would exist
after giving effect to the repurchases.
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 non-affiliated 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.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 Payment Default. Borrower fails to pay any of the Obligations within
three (3) days after their due date. During such three (3) day period the
failure to cure the default shall not constitute an Event of Default (but no
Credit Extension shall be made during such period);
8.2 Covenant Default. (i) Borrower fails or neglects to perform any
obligation in Section 6.2, Section 6.6, or Section 6.7 or violates any covenant
in Section 7; or (ii) Borrower fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant or agreement contained
in this Agreement, any Loan Documents, or in any present or future agreement
between Borrower and Bank and as to any default under such other material term,
provision, condition, covenant or agreement that can be cured, has failed to
cure the default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional period (which shall not in any case
exceed thirty (30) days) to attempt to cure such default, and within such
reasonable time period the failure to cure the default shall not be deemed an
Event of Default (but no Credit Extensions shall be made during such cure
period). Grace periods provided under this section shall not apply, among other
things, to financial covenants or any other covenants that are required to be
satisfied, completed or tested by a date certain;
8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment. (i) Any material portion of Borrower's assets is attached,
seized, levied on, or comes into possession of a trustee or receiver and the
attachment, seizure or levy is not removed in ten (10) days; (ii) the service of
process upon the Borrower seeking to attach, by trustee or similar process, any
funds of the Borrower on deposit with the Bank, or any entity under control of
Bank (including a subsidiary); (iii) Borrower is enjoined, restrained, or
prevented by court order from conducting a material part of its business; (iv) a
judgment or other claim becomes a Lien on a material portion of Borrower's
assets; or (v) a notice of lien, levy, or assessment is filed against any of
Borrower's assets by any government agency and not paid within ten (10) days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions shall be
made during the cure period);
8.5 Insolvency. (i) Borrower is unable to pay its debts (including trade
debts) as they become due or otherwise becomes insolvent; (ii) Borrower begins
an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or stayed within forty-five (45) days (but no Credit
Extensions shall be made before any Insolvency Proceeding is dismissed);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could reasonably be expected to result in a Material Adverse
Change;
8.7 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);
8.8 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;
8.9 Subordinated Debt. A default or breach occurs under any agreement
between Borrower and any creditor of Borrower that signed a subordination
agreement with Bank, or any creditor that has signed a subordination agreement
with Bank breaches any terms of the subordination agreement;
8.10 Guaranty. (i) Any guaranty of any Obligations terminates or ceases for
any reason to be in full force; or (ii) any Guarantor does not perform any
obligation or covenant under any guaranty of the Obligations in any material
respect; or (iii) 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 (iv) any circumstance described in Section 7, or Sections 8.4, 8.5
or 8.7 occurs to any Guarantor, or (v) the liquidation, winding up, termination
of existence, or insolvency of any Guarantor.
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 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Demand that the Borrowers (i) deposit cash with Bank in an amount equal
to the aggregate amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and the Borrower shall forthwith deposit and pay such amounts, and
(ii) pay in advance all Letter of Credit fees scheduled to be paid or payable
over the remaining term of any Letters of Credit; (d) Settle or adjust disputes
and claims directly with account debtors for amounts, on terms and in any order
that Bank considers advisable and notify any Person owing Borrower money of
Bank's security interest in such funds and verify the amount of such account;
(e) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower shall assemble the
Collateral if Bank requests and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(f) 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;
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, but, only
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;
(h) Place a "hold" on any account maintained with Bank and/or deliver a
notice of exclusive control, any entitlement order, or other directions or
instructions pursuant to any control agreement or similar agreements providing
control of any Collateral; and
(i) Exercise all rights and remedies and dispose of the Collateral
according to the Code.
9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its
lawful attorney-in-fact, to be effective upon the occurrence and during the
continuance of an Event of Default, 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) settle and adjust disputes and claims about the Accounts directly with
account debtors, for amounts and on terms Bank determines reasonable; (iv) make,
settle, and adjust all claims under Borrower's insurance policies; and (v)
transfer the Collateral into the name of Bank or a third party as the Code
permits. Borrower hereby appoints Bank as its lawful attorney-in-fact 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
until all Obligations have been satisfied in full and Bank is under no further
obligation to make Credit Extensions hereunder. Bank's foregoing appointment as
Borrower's attorney in fact, and all of Bank's rights and powers, coupled with
an interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank's obligation to provide Credit Extensions terminates.
9.3 Accounts Notification/Collection. In the event that an Event of Default
occurs and is continuing, Bank may notify any Person owing Borrower money of
Bank's security interest in the funds and verify and/or collect the amount of
the Account. After the occurrence of an Event of Default, any amounts received
by Borrower shall be held in trust by Borrower for Bank, and, if requested by
Bank, Borrower shall immediately deliver such receipts to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. Any amounts paid by Bank as provided herein shall
constitute Bank Expenses and are immediately due and payable, and shall bear
interest at the then applicable rate and be 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. So long as the Bank complies with
reasonable banking practices regarding the safekeeping of collateral, the Bank
shall not be liable or responsible 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 hereunder shall be 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.
10 NOTICES
All notices or demands by any party to this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile at the addresses listed below. Either Bank or Borrower may
change its notice address by giving the other party written notice.
If to Borrower: Zoom Telephonics, Inc.
000 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Chief Executive Officer - Xxxxx X. Xxxxxxx
Fax: (000) 000-0000
with a copy to: Zoom Telephonics, Inc.
000 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Chief Financial Officer - Xxxxxx X. Xxxxx
Fax: (000) 000-0000
If to Bank: Silicon Valley Bank
One Xxxxxx Executive Park, Suite 200
0000 Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Mr. Xxxxxxx Xxxxxxxx
Fax: (000) 000-0000
with a copy to: Xxxxxx & Xxxxxxxxxx LLP
Xxxxx Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxx, Esquire
Fax: (000) 000-0000
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Massachusetts 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 Massachusetts; provided, however, that if for
any reason Bank cannot avail itself of such courts in the Commonwealth of
Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa
Xxxxx County, California. NOTWITHSTANDING THE FOREGOING, THE BANK SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION WHICH THE BANK DEEMS NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE THE
BANK'S RIGHTS AGAINST THE BORROWER OR ITS PROPERTY.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS
OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND
ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER
INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement binds and is for the benefit of
the successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or Obligations 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, the Loan Documents
or any related agreement.
12.2 Indemnification. Borrower hereby indemnifies, defends and holds the
Bank and its directors, officers, employees and agents harmless against: (a) all
obligations, demands, claims, and liabilities asserted by any other party or
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 Right of Set-Off. Borrower hereby grants to Bank, a lien, security
interest and right of setoff as security for all Obligations to Bank, whether
now existing or hereafter arising upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of the Bank
(including a Bank subsidiary) or in transit to any of them. At any time after
the occurrence and during the continuance of an Event of Default, without demand
or notice, Bank may set off the same or any part thereof and apply the same to
any liability or obligation of Borrower even though unmatured and regardless of
the adequacy of any other collateral securing the Obligations. ANY AND ALL
RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY
OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER
ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
12.4 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.
12.5 Severability of Provision. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
12.6 Amendments in Writing; Integration. All amendments to this Agreement
must be in writing signed by both Bank and Borrower. This Agreement and the Loan
Documents represent the entire agreement about this subject matter, and
supersede prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.
12.7 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.
12.8 Survival. All covenants, representations and warranties made in this
Agreement continue in full force while any Obligations remain outstanding. The
obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the
statute of limitations with respect to such claim or cause of action shall have
run.
12.9 Confidentiality. In handling any confidential information, Bank shall
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 Credit
Extensions (provided, however, Bank shall use commercially reasonable efforts in
obtaining such prospective transferee's or purchaser's agreement to 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
reasonably considers appropriate in 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.
13 DEFINITIONS
13.1 Definitions. In this Agreement:
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing, as such definition may be amended from time to time according to the
Code.
"Advance" or "Advances" is a loan advance (or advances) under the Revolving
Line.
"Affiliate" is a Person that owns or controls directly or indirectly the
Person, any Person that controls or is controlled by or is under common control
with the Person, and each of that Person's senior executive officers, directors,
partners and, for any Person that is a limited liability company, that Person's
managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings). "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 storage or any equipment containing the
information.
"Borrowing Base" is 80% of Eligible Accounts, as determined by Bank from
Borrower's most recent Borrowing Base Certificate; provided, however, that Bank
may lower the percentage of the Borrowing Base after performing an audit of
Borrower's Collateral.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"Cash Management Services" is defined in Section 2.1.4.
"Cash Management Services Sublimit" is defined in Section 2.1.4.
"Closing Date" is the date of this Agreement.
"Code" is the Uniform Commercial Code as adopted in Massachusetts, as
amended and as may be amended and in effect from time to time.
"Collateral" is any and all properties, rights and assets of the Borrower
granted by the Borrower to Bank or arising under the Code, now, or in the
future, in which the Borrower obtains an interest, or the power to transfer
rights, in the property described on Exhibit A.
"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 any guarantee or other support arrangement.
"Credit Extension" is each Advance, Letter of Credit, F/X Forward Contract,
or any other extension of credit by Bank for Borrower's benefit.
"Current Liabilities" are all Obligations, plus, without duplication, the
aggregate amount of Borrower's Total Liabilities which mature within one (1)
year.
"Deferred Revenue" is all amounts invoiced in advance of performance under
contracts and not yet recognized as revenue.
"Eligible Accounts" are billed Accounts in the ordinary course of
Borrower's business that meet all Borrower's representations and warranties in
Section 5.2; but Bank may change eligibility standards by giving Borrower
notice. Unless Bank agrees otherwise in writing, Eligible Accounts shall not
include:
(a) Accounts that the account debtor has not paid within ninety (90) days
of invoice date;
(b) Accounts for an account debtor, fifty percent (50%) or more of whose
Accounts have not been paid within ninety (90) days of invoice date;
(c) Credit balances over ninety (90) days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed twenty-five (25%) of all Accounts, for the
amounts that exceed that percentage, unless Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal place
of business in the United States except for Eligible Foreign Accounts;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality thereof;
(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 and Bank believes there may be a basis for dispute (but only up to the
disputed or claimed amount), or if the account debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts which represent deferred revenue (but only to the extent of
such deferred revenue);
(l) Accounts for which Bank reasonably determines collection to be
doubtful.
"Eligible Foreign Accounts" are Accounts for which the account debtor does
not have its principal place of business in the United States but that Bank
approves in writing.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"FX Forward Contract" is defined in Section 2.1.3.
"FX Reserve" is defined in Section 2.1.3.
"GAAP" is generally accepted accounting principles.
"Guarantor" is any present or future guarantor of the Obligations, which as
of the Closing Date is limited to Zoom Technologies, 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.
"Initial Audit" is defined in Section 6.2(d).
"Insolvency Proceeding" is any proceeding 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 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.
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Letter of Credit" means a letter of credit or similar undertaking issued
by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth 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: (i) A material impairment in the perfection
or priority of Bank's security interest in the Collateral or in the value of
such Collateral; (ii) a material adverse change in the business, operations, or
condition (financial or otherwise) of the Borrower; (iii) a material impairment
of the prospect of repayment of any portion of the Obligations; or (iv) Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a substantial likelihood that Borrower shall fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
"Maturity Date" is the earlier of: (a) one (1) day prior to the maturity
date of the Real Estate Loan, or (b) March 15, 2006. [364 days after the Closing
Date]
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit, cash
management services, and foreign exchange contracts, if any, and including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Indebtedness existing on the Closing Date and shown on the Perfection
Certificate;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness secured by Permitted Liens; and
(f) The Indebtedness evidenced by the Commercial Real Estate Promissory
Note made for the benefit of Xxxxxxxxxx Bank & Trust Company dated January 10,
2001 in the original principal amount of $6,000,000 (the "Real Estate Loan"), or
any extension, renewal or refinancing of the Real Estate Loan.
"Permitted Investments" are:
(a) Investments shown on the Perfection Certificate 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., (iii) Bank's certificates of deposit issued
maturing no more than 1 year after issue, and (iv) any other investments
administered through the Bank.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Perfection
Certificate 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) Leases or subleases and non-exclusive licenses or sublicenses granted
in the ordinary course of Borrower's business, if the leases, subleases,
licenses and sublicenses permit granting Bank a security interest;
(d) 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; and
(e) Liens on the Real Property.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"Profitability Event" is the achievement by Borrower of a net profit (in
accordance with GAAP), for two (2) consecutive quarters, of at least $1.00.
"Quick Assets" is, on any date, the Borrower's unrestricted cash, cash
equivalents, net billed accounts receivable determined according to GAAP.
"Responsible Officer" is each of the Chief Executive Officer, President,
Chief Financial Officer and Controller of Borrower.
"Revolving Line" is an Advance or Advances of up to $2,000,000.00.
"Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (pursuant to a subordination agreement entered into between the
Bank, the Borrower and the subordinated creditor), on terms acceptable to Bank.
"Subsidiary" is any Person, corporation, partnership, limited liability
company, joint venture, or any other business entity of which more than 50% of
the voting stock or other equity interests is owned or controlled, directly or
indirectly, by the Person or one or more Affiliates of the Person.
"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 including 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, minus (ii) Total Liabilities, plus (iii) Subordinated
Debt.
"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 of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt and excluding the
Real Estate Loan.
"Unused Revolving Line Facility Fee" is defined in Section 2.4(d).
[The remainder of the page is intentionally left blank]
S-1
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:
ZOOM TELEPHONICS, INC.
By /s/ Xxxxx X. Xxxxxxx
Name: Xxxxx X. Xxxxxxx
Title: Chief Executive Officer
BANK:
SILICON VALLEY BANK
By /s/ Xxxxxxxxx Le
Name: Xxxxxxxxx Le
Title: Operations Supervisor
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods, equipment, inventory, contract rights or rights to payment of
money, leases, license agreements, franchise agreements, general intangibles
(including payment intangibles), accounts (including health-care receivables),
documents, instruments (including any promissory notes), chattel paper (whether
tangible or electronic), cash, deposit accounts, fixtures, letters of credit
rights (whether or not the letter of credit is evidenced by a writing),
commercial tort claims, securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and
All Borrower's books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
But, explicitly excludes: (i) any right, title and interest to the Real
Property, and (ii) any copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work, whether published or unpublished, now owned or later acquired; any
patents, trademarks, service marks and applications therefor; trade styles,
trade names, any trade secret rights, including any rights to unpatented
inventions, know-how, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; or any claims for
damages by way of any past, present and future infringement of any of the
foregoing.
"Real Property" shall mean:
(a) the parcels of land with buildings and improvements whether now
existing or hereafter constructed or located thereon, situated in Boston,
Suffolk County, Massachusetts, known as 000-000 Xxxxx Xxxxxx, 50 Utica Street,
000-000 Xxxxx Xxxxxx and 000-000 Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx (the
"Mortgaged Premises");
(b) all easements, covenants, agreements and rights which are appurtenant
to or benefit the Mortgaged Premises;
(c) all furnaces, ranges, heaters, plumbing goods, gas and electric
fixtures, screens, screen doors, mantels, shades, storm doors and windows,
awnings, oil burners and tanks, gas or electric refrigerators and refrigerating
systems, ventilating and air conditioning apparatus, door xxxx and alarm
systems, sprinkler and fire extinguishing systems, portable or sectional
buildings, and all other fixtures of whatever kind or nature owned by the
Borrower, now or in the future contained in or on the Mortgaged Premises, and
any and all similar fixtures hereinafter installed in the Mortgaged Premises in
any manner which renders such articles usable in connection therewith (but
excluding trade fixtures);
(d) all real estate leases, contracts or agreements entered into, for the
lease, rental, hire or use by the Mortgagor of any property of the same nature
as the foregoing subparagraph (c) in connection with the construction,
operation, maintenance or occupation of the Mortgaged Premises; and
(e) all real estate leases, tenancies, and occupancies, whether written or
not, regarding all or any portion of the foregoing (a) through (d), all
guarantees and security relating thereto, together with all income and profit
arising therefrom or from any of the foregoing subparagraphs (a) through (d),
and all payments due or to become due thereunder, including, without limitation,
all rent, additional rent, damages, insurance payments, taxes, insurance
proceeds, condemnation awards, or any payments with respect to options contained
therein (including any purchase option).
EXHIBIT B
Loan Payment/Advance Request Form
DEADLINE FOR SAME DAY PROCESSING IS 3:00 E.S.T.
Fax To: (000) 000-0000 Date: _____________________
LOAN PAYMENT:
ZOOM TELEPHONICS, INC. (Borrower)
From Account #____________________ To Account#______________________________
(Deposit Account #) (Loan Account #)
Principal $_______________________ and/or Interest$_________________________
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 $___________________________
All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone transfer request for an advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date:
Authorized Signature: __________________________ Phone Number:________________
OUTGOING WIRE REQUEST
Complete only if all or a portion of funds from the loan advance above are to be
wired. Deadline for same day processing is 3:00 pm, E.S.T.
Beneficiary Name: _____________________________ Amount of Wire:$________________
Beneficiary Bank: _____________________________ Account Number:_________________
City and State: _______________________________
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
---------------------------------------------------------------------------------------------
Borrower: ZOOM TELEPHONICS, INC.
Lender: Silicon Valley Bank
Commitment Amount: $2,000,000.00
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ____________________ $_______________
2. Additions (please explain on reverse) $_______________
3. TOTAL ACCOUNTS RECEIVABLE $_______________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_______________
5. Balance of 50% over 90 day accounts $_______________
6. Credit balances over 90 days $_______________
7. Concentration Limits $_______________
8. Foreign Accounts $_______________
9. Governmental Accounts $_______________
10. Contra Accounts $_______________
11. Promotion or Demo Accounts $_______________
12. Intercompany/Employee Accounts $_______________
13. Deferred Revenue $_______________
14. Other (please explain on reverse) $_______________
15. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_______________
16. Eligible Accounts (#3 minus #15) $_______________
17. LOAN VALUE OF ACCOUNTS (80% of #16) $_______________
BALANCES
18. Maximum Loan Amount $2,000,000.00
19. Total Funds Available (Lesser of #17 and #18) $_______________
20. Present balance owing on Line of Credit $_______________
21. Outstanding under Sublimits (L/C, F/X and Cash Management) $_______________
22. RESERVE POSITION (#19 minus #20 and #21) $_______________
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
-------------------------------------
BANK USE ONLY
Received by: _____________________
COMMENTS: AUTHORIZED SIGNER
Date: __________________________
Verified: ________________________
By: ___________________________ AUTHORIZED SIGNER
Authorized Signer Date: ___________________________
Compliance Status: Yes No
-------------------------------------
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: ZOOM TELEPHONICS, INC.
The undersigned authorized officer of ZOOM TELEPHONICS, INC. certifies that
under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending _______________ with all required covenants except as noted
below and (ii) there are no Events of Default, and all representations and
warranties in the Agreement are true and correct in all material respects on
this date. Attached are the required documents supporting the certification. The
Officer certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
Reporting Covenant Required Complies
------------------ -------- --------
Interim financial statements with CC Monthly within 30 days when Yes No
borrowing
BBC & A/R Agings Monthly within 30 days when Yes No
borrowing
10-Q and 10-K with CC Within 5 days after filing with SEC Yes No
8-K Within 5 days after filing with SEC Yes No
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
Maintain at all times (tested):
Minimum Adjusted Quick Ratio Greater than 2.0:1.0 ____:1.0 Yes No
(monthly)
Minimum Tangible Net Worth $13,500,000 for Q-end $_______ Yes No
(quarterly) 6/30/04*
$12,000,000 for Q-end $_______
9/30/04*
$11,500,000 for Q-end $_______
12/31/04*
$10,500,000 for Q-end $_______
3/31/05*
$ 9,000,000 for Q-end $_______
6/30/05*
*plus 80% of new equity
after the Closing Date
Comments Regarding Exceptions: See Attached.
---------------------------------------
BANK USE ONLY
Received by: _____________________
Sincerely, AUTHORIZED SIGNER
_____________________________ Date: __________________________
SIGNATURE
_____________________________ Verified: ________________________
TITLE AUTHORIZED SIGNER
_____________________________ Date: __________________________
DATE
Compliance Status: Yes No
---------------------------------------
