EXHIBIT 10.20
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XXXXXXXX.XXX, INC.
LOAN AND SECURITY AGREEMENT
SAND HILL CAPITAL II, L.P.
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This Loan and Security Agreement is entered into as of November 8, 1999 by
and between SAND HILL CAPITAL II, L.P., as Lender ("Lender") and XXXXXXXX.XXX,
INC. ("Borrower").
RECITALS
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Borrower wishes to obtain credit from Lender, and Lender desires to extend
credit to Borrower. This Agreement sets forth the terms on which Lender will
Advances credit to Borrower, and Borrower will repay the amounts owing to
Lender.
AGREEMENT
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The parties agree as follows:
I. DEFINITIONS AND CONSTRUCTION
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1.1 Definitions. As used in this Agreement, the following terms
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shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a cash Advance or Advances under
Section 2. 1.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Borrower's Books" means all of Borrower's books and records
including without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Borrower and its Subsidiaries
taken as a whole to any "person" or "group" (within the
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meanings of Sections 13(d)(3) and 14(d)(2), respectively, of the Exchange Act)
other than (y) the holders of the Borrower's capital stock as of the date of
this Agreement, (ii) the adoption of a plan relating to the liquidation or
dissolution of the Borrower and (iii) the consummation of any transaction
(including any merger or consolidation) the result of which is that any "person"
or "group" (as defined above), other than (y) the holders of the Borrower's
capital stock as of the date of this Agreement, becomes the "beneficial owner"
(as such term is defined in Rules 13(d)-3 and 13(d)-5 of the Exchange Act)
directly or indirectly, of more than 50% of the voting stock of Borrower or (iv)
during any consecutive two-year period, individuals who at the beginning of such
period constituted the board of directors of Borrower (together with any new
directors whose election to such board of directors or whose nomination for
election by the stockholders of Borrower was approved by a vote of a majority of
the directors of the Borrower then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of directors of Borrower then in office.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit B attached
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hereto.
"Commitment" means the obligation of Lender to make Advances
to Borrower under this Agreement.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
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"Credit Extension" means the Advances or any other extension of
credit by Lender for the benefit of Borrower hereunder.
"Domain Names" means the names set forth on Exhibit D to the
Intellectual Property Security Agreement of even date.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means all of Borrower's right,
title and interest in and to the following:
(a) Copyrights, Trademarks, Patents, Domain Names, and Mask
Works;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to xxx for and collect such damages for said use or infringement
of the intellectual property rights identified above;
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(e) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, Domain Names or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents, Domain Names or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Intellectual Property Security Agreement" means an intellectual
property security agreement in a form reasonably acceptable to Lender.
"Inventory" means all 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 at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, Advances or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lender Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred by Lender in
connection with the preparation, negotiation, administration, and enforcement of
the Loan Documents; and the reasonable attorneys' fees and expenses incurred by
Lender in amending, enforcing or defending the Loan Documents (including fees
and expenses of appeal or review, or those incurred in any Insolvency
Proceeding), whether or not suit is brought.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Lender in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask works or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired.
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"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Lender
Expenses and other amounts owed to Lender by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Lender may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections, including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"Payment Date" means the tenth calendar day of each month during
the term of this Agreement.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Lender
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Lender.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Lender arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness to trade creditors and with respect to surety
bonds, letters of credit and similar obligations incurred in the ordinary course
of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of any other Subsidiary (provided that the primary
obligations are not prohibited hereby);
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(f) Capital leases or indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such equipment
or the fair market value of such equipment on the date of acquisition; and
(g) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (f) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof; (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having a high rating obtainable from either Standard &
Poor's Corporation or Xxxxx'x Investors Service, Inc.; (iii) Investments made in
accordance with Borrower's investment policy, as approved from time to time by
Borrower's Board of Directors; and (iv) certificates of deposit maturing no more
than one (1) year from the date of investment therein issued by Lender; an d
(c) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the Board of
Directors of Borrower determines that such compensation is in the best interests
of Borrower, (ii) travel Advances, employee relocation loans and other employee
loans and Advances in the ordinary course of business, and (iii) loans to
employees, officers or directors relating to the purchase of equity securities
of Borrower or its Subsidiaries pursuant to employee stock purchase plans or
agreements approved by Borrower's Board of Directors.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
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over any of Lender's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
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acquired and improvements thereon, and the proceeds of such Equipment;
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(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement);
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a), (c) and (d) above, provided that any extension, renewal or
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replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Responsible Officer" means each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Lender on terms acceptable to
Lender (and identified as being such by Borrower and Lender).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Term Facility" means the facility under which Borrower may
request Lender to issue the Advances, as specified in Section 2.1 hereof.
"Term Maturity Date" means the earlier of (i) the day before
the first anniversary of the Closing Date or (ii) ten business days following
the closing of the Borrower's initial public offering, or such earlier dates
as all amounts become due hereunder pursuant to Section 9. 1.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but excluding unearned revenue.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, 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 such trademarks.
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"Warrant" means the warrant to purchase Borrower's capital stock,
delivered in connection with this Agreement.
1.2 Accounting and Other Terms. All accounting terms not specifically
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defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including" / "includes" shall always be read as
meaning "including (or includes) without limitation," when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
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2.1 Advances.
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(a) Borrower promises to pay to the order of Lender, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Credit Extensions made by Lender to Borrower hereunder. Borrower shall also
pay interest on the unpaid principal amount of such Credit Extensions at rates
in accordance with the terms hereof.
(b) Subject to and upon the terms and conditions of this
Agreement, Lender agrees to make up to three (3) Advances to Borrower in an
aggregate amount not to exceed Fifteen Million One Hundred Fifty Thousand
Dollars ($15,150,000). Each Advance shall be in an amount not less than Five
Million Dollars ($5,000,000), provided that, with Lender's prior consent, an
Advance may be for a lower amount. To obtain an Advance, Borrower shall notify
Lender in writing (which shall be irrevocable) not less than two (2) Business
Days before the Business Day that an Advance is requested. Each such request
shall constitute a representation by Borrower that the Representations and
Warranties set forth in Article 5 are true and correct, that Borrower is in
compliance with the covenants contained in Articles 6 and 7, and that an Event
of Default has not occurred and is continuing. Not later than 3:00 p.m.
California time on the funding date, Lender will transfer to such account as
Borrower designates the amount of the Advance.
(c) The Advances made by Lender pursuant hereto shall be
evidenced by a promissory note of Borrower, substantially in the form of Exhibit
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A-I hereto (the "Term Note"), payable to the order of Lender and representing
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the obligation of Borrower to pay the aggregate unpaid principal amount of the
Advances made by Lender, with interest thereon as prescribed in Section 2.2.
Lender is authorized to record in its books and records and on any schedule
annexed to its Term Note, the date and amount of each payment of principal
thereof, and any such recordation shall constitute prima facie evidence of the
accuracy of the information so recorded; provided that failure by Lender to
effect such recordation shall not affect Borrower's obligations hereunder. Prior
to the transfer of a Term Note, the transferring Lender shall record such
information on any schedule annexed to and forming a part of such Term Note.
(d) The Term Facility shall terminate on the Term Maturity Date,
at which time all amounts outstanding under this Agreement shall be immediately
due and payable.
2.2 Interest Rates, Payments, and Calculations.
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(a) Interest Rate. Except as set forth in Section 2.2(b), the
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Advances shall bear interest, on the outstanding daily balance thereof, at a
fixed rate equal to Eleven Percent (11 %). All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed. Interest shall accrue from the date
of each Advances and shall be payable monthly on the Payment Date for each month
through the Maturity Date.
(b) Late Fee; Default Rate. If any payment is not made within
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ten (10) days of the date on which such payment is due, Borrower shall pay
Lender, a late fee equal to five percent (5%) of the amount of such unpaid
amount. All Obligations shall bear interest, from and the occurrence of an Event
of Default, at a rate equal to eighteen percent (18%) per annum. If any amount
remains outstanding hereunder after the Term Maturity Date, Lender may purchase
an aggregate of 1,666 additional shares under the Warrants at the then-
applicable Warrant Price in accordance with the terms thereof for each day that
any amount remains outstanding.
(c) Payments. Interest hereunder shall be due and payable by
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wire transfer to Lender's account no. 000-000-000 at Far East National Bank, ABA
No. 000000000 not later than 12:00 noon California time on each Payment Date.
(d) Prepayments/Scheduled Payments. On July 15, 2000, Borrower
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shall make a scheduled payment on account of the Advances in an amount of not
less than the lesser of Seven Million Dollars ($7,000,000) or the outstanding
balance hereunder. Borrower may prepay all or any portion of the Advances up to
an outstanding balance of Three Million Dollars ($3,000,000) without penalty or
premium upon not less than three (3) days' prior written notice to Lender, which
shall be irrevocable. Borrower may prepay the remaining balance of Three Million
Dollars ($3,000,000) only with the written consent of Lender. Borrower is not
required to give advance notice of the scheduled payment due on July 15, 2000.
2.3 Conversion. On or after the closing of an Equity Event on or
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before the Term Maturity Date, Lender may elect to convert up to Three Million
Dollars ($3,000,000) of the outstanding principal balance hereunder into the
number of shares of capital stock issued by Borrower in such Equity Event as is
obtained by dividing (a) such amount designated by Lender by (b) the price per
share of the capital stock issued in the Equity Event (the "Conversion Stock").
"Equity Event" means an equity financing in which Borrower sells equity
securities and obtains net proceeds in an amount not less than Five Million
Dollars ($5,000,000). Upon such conversion, Borrower shall issue to Lender a
share certificate evidencing Lender's shares of the Conversion Stock. Lender
shall be entitled to all of the rights and privileges accorded to the purchasers
of the Conversion Stock in the Equity Event. Borrower shall give Lender not less
than ten (10) days notice prior to the consummation of any Equity Event.
2.4 Crediting Payments. Lender shall apply each payment received
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from Borrower as follows: first to Lender's Expenses, next to any accrued
interest, and finally to any principal. The receipt by Lender of any wire
transfer of funds, check, or other item of payment, shall be immediately applied
to conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for
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payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Lender after 12:00 noon Pacific time shall be
deemed to have been received by Lender as of the opening of business on the
immediately following Business Day. Whenever any payment under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Lender the following:
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(a) Facility Fee. On the Closing Date, a Facility Fee equal to
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One Hundred Fifty Thousand Dollars ($150,000) which fee shall be nonrefundable;
(b) Financial Examination and Appraisal Fees. Lender's customary
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fees and out-of-pocket expenses for Lender's audits of Borrower's Books, and for
each appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Lender or its agents; and
(c) Lender Expenses. Upon demand from Lender, including, without
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limitation, upon the date hereof, all Lender Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses not to exceed
Thirty-Five Thousand Dollars ($35,000) with offset and recoverability for the
$20,000 deposit already made by Borrower to Lender in connection with this
Agreement and, after the date hereof, all Lender Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or
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official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Lender to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Lender imposed by the United States of America or
any political subdivision thereof)
and the result of any of the foregoing is to increase the cost to Lender, reduce
the income receivable by Lender or impose any expense upon Lender with respect
to any loans, Lender shall notify Borrower thereof. Borrower agrees to pay to
Lender the amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or determined,
upon presentation by Lender of a statement of the amount and setting forth
Lender's calculation thereof, all in reasonable detail, which statement shall be
deemed true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
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become effective on the Closing Date and, subject to Section 10.12, shall
continue in full force and effect for so long as any Obligations are
outstanding. Notwithstanding the foregoing, Lender shall have
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the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.
3. CONDITIONS OF LOANS
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3.1 Conditions Precedent to Advances. The obligation of Lender to
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make the Advances is subject to the condition precedent that Lender shall have
received, in form and substance satisfactory to Lender, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a warrant in the name of Lender;
(d) the Intellectual Property Security Agreement;
(e) a promissory note evidencing Borrower's indebtedness to
Lender under the Term Facility;
(f) an agreement to provide insurance;
(g) financing statement (Form UCC-1) filed with the appropriate
offices;
(h) payment of the fees and Lender Expenses then due specified
in Section 2.5 hereof, and
(i) such other documents, and completion of such other matters,
as Lender may reasonably deem necessary or appropriate.
4. CREATION OF SECURITY INTEREST
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4.1 Grant of Security Interest. Borrower grants, assigns and pledges
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to Lender a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
Borrower acknowledges that Lender may place a "hold" on any deposit account
pledged as Collateral to secure the Obligations. Notwithstanding termination of
this Agreement, Lender's Lien on the Collateral shall remain in effect for so
long as any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall
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from time to time execute and deliver to Lender, at the request of Lender, all
Negotiable Collateral, all financing statements and other documents that Lender
may reasonably request, in form
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satisfactory to Lender, to perfect and continue perfected Lender's security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Lender (through any of its officers,
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employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
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follows except as set forth in the Schedule:
5.1 Due Organization and Qualification. Borrower and each Subsidiary
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is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except for states as to which any
failure to so qualify would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
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performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or 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, which
default could reasonably be expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and marketable title to
---------------------
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Accounts. The Accounts are bona fide existing
------------------
obligations. The service or property giving rise to such Accounts has been
performed or delivered to the account debtor or to the account debtor's agent
for immediate shipment to and unconditional acceptance by the account debtor.
5.5 Merchantable Inventory. All Inventory is in all material
----------------------
respects of good and marketable quality, free from all material defects.
5.6 Intellectual Property. Borrower owns or has rights to use all
---------------------
intellectual property (including all Patents, Trademarks, Copyrights, Domain
Names, licenses to use any of the foregoing, trade secrets, and know-how)
necessary to continue to conduct its business as now or heretofore conducted by
it or proposed to be conducted by it, and each patent, trademark, copyright and
license held by Borrower is listed, together with application or registration
numbers, as applicable on Exhibit A, B, C, and D to the Intellectual Property
Security Agreement. Borrower conducts its business and affairs without
infringement of or interference with any intellectual property of any other
Person. Each of the Patents is valid and enforceable, and no part of the
Intellectual Property Collateral has been judged invalid or unenforceable, in
12
whole or in part, and no claim has been made that any part of the Intellectual
Property Collateral violates the rights of any third party. Except for and upon
the filing with the California Secretary of State a financing statement on Form
UCC-1 and with the United States Patent and Trademark Office with respect to the
Patents and Trademarks and the Register of Copyrights with respect to the
Copyrights and Mask Works necessary to perfect the security interests created
hereunder, and except as has been already made or obtained, no authorization,
approval or other action by, and no notice to or filing with, any United States
governmental authority or United States regulatory body is required either (i)
for the grant by Borrower of the security interest granted hereby or for the
execution, delivery or performance of Loan Documents by Borrower in the United
States or (ii) for the perfection in the United States or the exercise by Lender
of any rights and remedies hereunder.
5.7 Name; Location of Chief Executive Office. Except as disclosed
----------------------------------------
in the Schedule, Borrower has not done business and will not, without at least
twenty (20) days prior written notice to Lender, do business under any name
other than that specified on the signature page hereof. The chief executive
office of Borrower is located at the address indicated in Section 10 hereof.
5.8 Litigation. Except as set forth in the Schedule, there are no
----------
actions or proceedings pending or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could reasonably be expected to have a Material
Adverse Effect or a material adverse effect on Borrower's interest or Lender's
security interest in the Collateral.
5.9 No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Lender fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Lender on or about the Closing Date.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could reasonably be expected to have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.11 Environmental Condition. To the best of Borrower's knowledge,
-----------------------
none of Borrower's or any Subsidiary's properties or assets has ever been used
by Borrower or any
13
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release or other disposition of hazardous waste or
hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all material tax returns required to be filed on a timely basis, and has
paid, or has made adequate provision for the payment of, all taxes reflected
therein, except those being contested in good faith by proper proceedings with
adequate reserves under GAAP.
5.13 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained
-------------------
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted except
where the failure to obtain any such consent, approval or authorization, to make
any such declaration or filing, or to be given any such notice could not
reasonably be expected to have a Material Adverse Effect.
5.15 Year 2000. Borrower and its Subsidiaries have reviewed the
---------
areas within their operations and business which could be adversely affected by,
and have developed or are developing a program to address on a timely basis, and
based on such review and program, the Year 2000 Problem will not have a material
adverse effect upon the financial condition, operations or business of the
Borrower and its Subsidiaries as now conducted. "Year 2000 Problem" means the
possibility that any computer applications or equipment used by Borrower and its
Subsidiaries may be unable to recognize and properly perform date sensitive
functions involving certain dates prior to and any dates on or after December
31, 1999.
5.16 Full Disclosure. No representation, warranty or other statement
---------------
made by Borrower in any certificate or written statement furnished to Lender
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading (it being recognized that the projections and
forecasts provided by Borrower are not to be viewed as facts and that actual
results during the period or period covered by any such projections and
forecasts may differ from the projected or forecasted results).
14
6. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, until
---------------------
payment in full of all outstanding Obligations, and for so long as Lender may
have any commitment to make a Credit Extension hereunder, Borrower shall do all
of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could reasonably be expected to have a Material Adverse
Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to
maintain in force all licenses, approvals and agreements, the loss of which
could reasonably be expect to have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Lender's Lien on
the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
-------------------------------------------
deliver to Lender: (a) as soon as available, but in any event within thirty (30)
days after the end of each calendar month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during such period, in a form acceptable to Lender and certified by a
Responsible Officer; (b) as soon as available, but in any event within one
hundred twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Lender; (c) if applicable, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders or
to any holders of Subordinated Debt and all reports on Form 10-K and 10-Q filed
with the Securities and Exchange Commission; (d) promptly upon receipt of notice
thereof, a 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 One Hundred Thousand Dollars ($100,000) or more; and (e) within
thirty (30) days of the last day of each fiscal quarter, a report signed by
Borrower, in form reasonably acceptable to Lender, listing any applications or
registrations that Borrower has made or filed in respect of any Patents,
Copyrights, Domain Names or Trademarks and the status of any outstanding
applications or registrations, as well as any material change in Borrower's
intellectual property, including but not limited to any subsequent ownership
right of Borrower in or to any Trademark, Patent or Copyright not specified in
Exhibits A, B, C, and D of the Intellectual Property Security Agreement
---------- - - -
delivered to Lender in connection with this Agreement.
Lender shall have a right from time to time hereafter to audit Borrower's
Accounts and appraise Collateral at Borrower's expense, provided that such
audits will be conducted no more often than every six (6) months unless an Event
of Default has occurred and is continuing.
15
6.4 Taxes. Borrower shall make, and shall cause each Subsidiary to
-----
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Lender, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower or a Subsidiary has made
such payments or deposits.
6.5 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower's business is
conducted on the date hereof. Borrower shall also maintain insurance relating to
Borrower's ownership and use of the Collateral in amounts and of a type that are
customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Lender.
All such policies of property insurance shall contain Lender's loss payable
endorsement, in a form satisfactory to Lender, showing Lender as an additional
loss payee thereof and all liability insurance policies shall show Lender as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Lender before canceling its policy for any reason. At
Lender's, request, Borrower shall deliver to Lender certified copies of such
policies of insurance and evidence of the payments of all premiums therefor. So
long as no Event of Default has occurred and is continuing, Borrower shall have
the option of applyin g the proceeds of any casualty policy to the replacement
or repair of destroyed or damaged property; provided, that after the occurrence
--------
and during the continuance of an Event of Default, all proceeds payable under
any such policy shall, at the option of Lender, be payable to Lender to be
applied on account of the Obligations.
6.6 Registration of Intellectual Property Rights.
--------------------------------------------
(a) Borrower shall register or cause to be registered, on an
expedited basis, (to the extent not already registered) with the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable, those intellectual property rights (if any) listed on Exhibits A, B,
C and D to the Intellectual Property Security Agreement delivered to Lender by
Borrower in connection with this Agreement within thirty (30) days of the date
of this Agreement, but only to the extent such registration is necessary as a
condition to perfecting Lender's security interest in the Collateral. Borrower
shall register or cause to be registered with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, those
additional intellectual property rights developed or acquired by Borrower from
time to time in connection with any product prior to the sale or licensing of
such product to any third party, including without limitation revisions or
additions to the intellectual property rights listed on such Exhibits A, B, C
and D, but only to the extent such registration is necessary as a
16
condition to perfecting Lender's security interest in any material intellectual
property right included within the Collateral.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Lender shall reasonably request
to perfect Lender's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Domain Names, Trademarks, Patents and
Copyrights, (ii) use its best efforts to detect infringements of the Trademarks,
Patents and Copyrights and promptly advise Lender in writing of material
infringements detected, (iii) keep current all fees due to maintain the Domain
Names, and maintain the sites represented by each of the Domain Names and (iv)
not allow any Domain Names, Trademarks, Patents or Copyrights to be abandoned,
forfeited or dedicated to the public without the written consent of Lender,
which shall not be unreasonably withheld, unless Lender determines that
abandonment will not have an adverse effect on the Collateral.
(d) Lender shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this Section 6.7 to take but which Borrower fails to take, after fifteen (15)
days' notice to Borrower. Borrower shall reimburse and indemnify Lender for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.7.
6.7 Year 2000 Compliance. Borrower shall perform all acts
--------------------
reasonably necessary to ensure that Borrower and any business in which Borrower
holds a substantial interest become Year 2000 Compliant in a timely manner. Such
acts shall include, without limitation, performing a comprehensive review and
assessment of all Borrower's systems and adopting a detailed plan, with itemized
budget, for the remediation, monitoring and testing of such systems. As used in
this paragraph, "Year 2000 Compliant" shall mean, in regard to any entity, that
all software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000. Borrower shall immediately upon request, provide to Lender such
certifications or other evidence of Borrower's compliance with the terms of this
paragraph as Lender may from time to time require.
6.8 Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Lender to effect the purposes of this
Agreement.
7. NEGATIVE COVENANTS. Borrower covenants and agrees that, so long as
------------------
any Credit Extension hereunder shall be available and until payment in full of
the outstanding Obligations or for so long as Lender may have any commitment to
make any Advances, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
------------
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than Transfers (i)
of non-exclusive licenses and similar arrangements
17
for the use of the property of Borrower or its Subsidiaries in the ordinary
course of business, (ii) Transfers of worn-out or obsolete Equipment or
Equipment financed by other vendors, and (iii) other Transfers not otherwise
permitted by this Section 7.1 not exceeding Two Hundred Thousand Dollars
($200,000) in the aggregate.
7.2 Changes in Business, Ownership, Management or Business Locations.
----------------------------------------------------------------
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a Change in Control. Borrower will not, without at least twenty (20) days
prior written notification to Lender, relocate its chief executive office
outside the State of California or add any new material offices or business
locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; provided
that Borrower may do any of the foregoing (i) if the aggregate consideration
(exclusive of Borrower's stock) is less than Two and a Half Million Dollars
($2,500,000) or (ii) if the sole consideration is Borrower's stock, provided in
either case that Borrower is the surviving entity and that an Event of Default
does not exist before such transaction or after giving effect to such
transaction.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property.
7.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock, provided, that (i) Borrower may declare and make any dividend payment or
other distribution payable in its equity securities, (ii) Borrower may convert
any of its convertible securities into other securities pursuant to the terms of
such convertible securities or otherwise in exchange therefor and (iii) for so
long as an Event of Default has not occurred, Borrower may repurchase stock from
former employees of Borrower in accordance with the terms of repurchase or
similar agreements between Borrower and such employees.
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments or as allowed under Section 7.3.
7.8 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
18
favorable to Borrower than would be obtained in an arm's length transaction with
a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Lender's prior written consent.
7.10 Equipment and Inventory. Store its Equipment or Inventory with
-----------------------
a bailee, warehouseman, or similar party unless Lender has received a pledge of
any warehouse receipt covering such Inventory. Except for such other locations
as Lender may approve in writing, Borrower shall keep its Equipment and
Inventory only at its principal place of business and such other locations of
which Borrower gives Lender prior written notice and as to which Borrower signs
and files a financing statement where needed to perfect Lender's security
interest in any Collateral. Lender acknowledges that Borrower is moving its
offices to Brisbane, California. Within ten (10) days of such move, Borrower
will deliver an amendment to Lender's financing statement reflecting such change
of address.
7.11 Compliance. Become an "investment company" or a company
----------
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advances for
such 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, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Lender's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT. Any one or more of the following events shall
-----------------
constitute an Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, within ten (10) days
---------------
of the date when due, any of the Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
----------------
under Article 6 or violates any of the covenants contained in Article 7 of this
Agreement, or if Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Lender and as to any default under such other
term, provision, condition, covenant or agreement that can be cured, has failed
to cure such 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 reasonable 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 have cured such default
shall not be deemed an Event of
19
Default (provided that no Credit Extensions will be required to be made during
such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse
-----------------------
change in the business, operations, or condition (financial or otherwise) of
Borrower or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Lender's security interests in the Collateral;
8.4 Attachment. If any portion of Borrower's assets is attached,
----------
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
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 Two Hundred Fifty
Thousand Dollars ($250,000) or that could reasonably be expected to have a
Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with or for the benefit of Lender;
8.8 Judgments. If a judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least Two Hundred Fifty
Thousand Dollars ($250,000) 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); or
8.9 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate or writing delivered to any Lender by
Borrower or any Person acting on Borrower's
20
behalf pursuant to this agreement or to induce lender to enter into this
agreement or any other Loan Document.
9. RIGHTS AND REMEDIES
-------------------
9.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Lender may, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Lender or Lender);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and any Lender;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Lender reasonably
considers advisable;
(d) Make such payments and do such acts as Lender considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Lender so requires, and to make
the Collateral available to Lender as Lender may designate. Borrower authorizes
Lender to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any encumbrance, charge, or lien which in Lender's
determination appears to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith. With respect to any of
Borrower's premises, Borrower hereby grants Lender a license to enter such
premises and to occupy the same, without charge, in order to exercise any of
Lender's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Set off and apply to the Obligations any and all (i) balances
and deposits of Borrower held by any Lender, or (ii) indebtedness at any time
owing to or for the credit or the account of Borrower held by any Lender;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Lender 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 property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with
Lender's exercise of its rights under this Section 9.1, Borrower's rights under
all licenses and all franchise agreements shall inure to Lender's benefit;
21
(g) Dispose of the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Lender
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order Lender deems appropriate;
(h) Lender may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during
-----------------
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Lender (and any of Lender's designated officers, or employees) as Borrower's
true and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Lender's security interest in the Accounts; (b)
endorse Borrower's name on any checks or other forms of payment or security that
may come into Lender's possession; (c) sign Borrower's name on any invoice or
xxxx of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to Borrower's policies of insurance; (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Lender determines to be reasonable; (f) to modify, in its
sole discretion, the Intellectual Property Security Agreement without first
obtaining Borrower's approval of or signature to such modification by amending
Exhibit A, Exhibit B, Exhibit C and Exhibit D, thereof, as appropriate, to
include reference to any right, title or interest in any Copyrights, Patents,
Trademarks, or Domain Names acquired by Borrower after the execution hereof or
to delete any reference to any right, title or interest in any Copyrights,
Patents, Trademarks or Domain Names in which Borrower no longer has or claims
any right, title or interest; (g) to file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of Borrower where permitted by law; and (h)
to dispose of the Collateral to the extent permitted under the Code, provided
Lender may exercise such power of attorney to sign the name of Borrower on any
of the documents described in Section 4.2 only when an Event of Default has
occurred. The appointment of Lender as Borrower's attorney in fact, and each and
every one of Lender's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Lender's obligation to provide Advances hereunder is terminated.
9.3 Accounts Collection. At any time from the date of this Agreement,
-------------------
Lender may notify any Person owing funds to Borrower of Lender's security
interest in such funds and verify the amount of such Account. Borrower shall
collect all amounts owing to Borrower for Lender, receive in trust all payments
as Lender's trustee, and, after the occurrence of an Event of Default,
immediately deliver such payments to Lender in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Lender Expenses. If Borrower fails to pay any amounts or furnish
---------------
any required proof of payment due to third persons or entities, as required
under the terms of this
22
Agreement, then Lender may do any or all of the following: (a) make payment of
the same or any part thereof; (b) set up such reserves under the Term Committed
Line as Lender deems necessary to protect Lender from the exposure created by
such failure; or (c) obtain and maintain insurance policies of the type
discussed in Section 6.6 of this Agreement, and take any action with respect to
such policies as Lender deems prudent. Any amounts so paid or deposited by
Lender shall constitute Lender Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Lender shall not
constitute an agreement by Lender to make similar payments in the future or a
waiver of any Event of Default under this Agreement.
9.5 Liability for Collateral. Lender shall not in any way or manner
------------------------
be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause other than from Lender's gross negligence; (c) any diminution in the value
thereof, or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Lender's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Lender shall have all other rights and remedies not expressly set forth herein
as provided under the Code, by law, or in equity. No exercise of one right or
remedy shall be deemed an election, and no waiver of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay shall constitute a
waiver, election, or acquiescence by it. No waiver shall be effective unless
made in a written document signed on behalf of Lender and then shall be
effective only in the specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, 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 at any time held by Lender on which Borrower may in any way be
liable.
10. MISCELLANEOUS
-------------
10.1 Amendments. No amendment or waiver of any provision of the Loan
----------
Documents nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
10.2 Notices, Etc. Except as otherwise set forth in this Agreement,
------------
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, email, telex or facsimile communication) and mailed or
telegraphed or telexed or sent by facsimile or email or delivered, if to the
Borrower, at its address set forth on the signature page hereof; and if to
Lender, at its address set forth on the signature page hereof; or, as to each
party, at such other address as shall be designated by such party in a written
notice to the other parties. All such notices and communications shall be
effective three (3) Business Days after deposit in
23
the U.S. mail, postage prepaid, when sent by telex, email, facsimile, or when
delivered, respectively.
10.3 Additional Lender; Assignments; Participations.
----------------------------------------------
(a) None of the Loan Documents nor any rights thereunder may be
assigned by Borrower without the prior written consent of Lender, which consent
may be granted or withheld in the Lender's sole discretion. Lender may assign,
from time to time, all or any portion of the Commitments and its Note to an
Affiliate of Lender, provided that the parties to each such assignment shall
--------
execute and deliver to Borrower an assignment agreement reasonably satisfactory
to Lender. Upon (a) such execution and delivery from and after the effective
date of such assignment (x) the assignee thereunder shall be a party hereto and,
to the extent that rights and obligations hereunder have been assigned to it,
have the rights and obligations of a Lender hereunder and (y) the Lender
assignor thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it, relinquish its rights and be released from its
obligations under this Agreement (other than pursuant to Section 10.3(e)), and,
in the case of an assignment covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto, subject to its continuing obligations under
Section 10.3(e). If any such assignment occurs while any Note is outstanding, a
new Note shall, upon the surrender of the assigning Lender's Note, be issued to
such assignee and to the assigning Lender as necessary to reflect the new
Commitment of the assigning Lender and of its assignee.
(b) Lender may sell, negotiate or grant participations to other
parties in all or part of the obligations of the Borrower outstanding under the
Loan Documents, without notice to or the approval of Borrower; provided that any
--------
such sale, negotiation or participation shall be in compliance with the
applicable federal and state securities laws and the other requirements of this
Section 10.3. No participant shall constitute a "Lender" under any Loan
Document, and the Borrower shall continue to deal solely and directly with
Lender.
(c) Lender may disclose to any proposed assignee or participant
any information relating to the Borrower or any of its Subsidiaries; provided,
--------
that prior to such disclosure such proposed assignee or participant shall have
agreed in writing to keep any such information confidential substantially on the
terms of Section 10.3(e).
(d) The grant of a participation interest shall be on such terms
as the granting Lender determines are appropriate, provided only that (i) the
holder of such a participation interest shall not have any of the rights of
Lender under this Agreement except, if the participation agreement so provides,
rights to demand the payment of costs of the type described in Section 2.5(c),
(ii) the consent of the holder of such a participation interest shall not be
required for amendments or waivers of provisions of the Loan Documents other
than those that (a) increase the amount of the Commitment, (b) extend the term
of the Commitment, (c) decrease the rate of interest or the amount of any fee or
any other amount payable to Lender under the Loan Documents, (d) reduce the
principal amount payable under the Loan Documents, or (e) extend the date fixed
for the payment of principal or interest or any other amount payable under the
Loan Documents, and (iii) the holder may not transfer or participate any of its
interest without the consent of the Lender.
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(e) Lender understands that some of the information and
documents furnished to it pursuant to this Agreement may be confidential and
Lender agrees that it will keep all non-public information, documents and
agreements so furnished to it confidential and will make no disclosure to other
Persons of such information or agreements until it shall have become public,
except (i) to the extent required in connection with matters involving
operations under or enforcement or amendment of the Loan Documents; (ii)
Lender's examiners and auditors or in accordance with Lender's obligations under
law or regulations or pursuant to subpoenas or other process to make information
available to governmental agencies and examiners or to others; (iii) to any
corporate parent of Lender so long as such parent agrees in writing to accept
such information or agreement subject to the restrictions provided in this
Section 10.3(e); (iv) to any participant bank or trust company of any Lender or
any participant so long as such participant shares the corporate parent with
such Lender and agrees to keep such information, documents or agreement
confidential in accordance with the restrictions provided in this Section
10.3(e); (v) to any other Lender or participant and their respective counsel and
other professional advisors and to its own counsel and professional advisors so
long as such Persons are instructed to keep such information confidential in
accordance with the provisions of this Section 10.3(e); (vi) to proposed
assignees and participants in accordance with Section 10.4(c); and (vii) with
the prior written consent of the Borrower.
10.4 Effectiveness; Binding Effect; Governing Law. This Agreement
--------------------------------------------
shall become effective when it shall have been executed by Borrower and Lender
and thereafter shall be binding upon and inure to the benefit of Borrower,
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of Lender THIS AGREEMENT AND THE NOTES SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW DOCTRINE.
10.5 Waiver of Jury Trial. BORROWER AND LENDER HEREBY AGREE TO WAIVE
--------------------
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION
AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of
this waiver is intended to be all-encompassing of any and all disputes that may
be filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. Lender and Borrower each acknowledge that this
waiver is a material inducement to enter into a business relationship, that each
has already relied on the waiver in entering into this Agreement, and that each
will continue to rely on the waiver in their related future dealings. Lender and
Borrower further warrant and represent that each has reviewed this waiver with
its legal counsel, and that each knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO
25
THE LOAN. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
10.6 Consent to Jurisdiction; Venue; Lender for Service of Process.
-------------------------------------------------------------
All judicial proceedings brought against Borrower with respect to this Agreement
and the Loan Documents may be brought in any state or federal court of competent
jurisdiction in the County of Santa Xxxxx in the State of California, and by
execution and delivery of this Agreement, Borrower accepts for itself and in
connection with its properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement. Borrower
irrevocably waives any right it may have to assert the doctrine of forum non
---------
conveniens or to object to venue to the extent any proceeding is brought in
----------
accordance with this Section. Borrower designates and appoints Borrower's Chief
Financial Officer, from time to time, and such other Persons as may hereafter be
selected by Borrower irrevocably agreeing in writing to so serve as its agent to
receive on its behalf service of all process in any such proceedings in any such
court, such service being hereby acknowledged by Borrower to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to Borrower at its address provided in the applicable
signature page hereto, except that unless otherwise provided by applicable law,
any failure to mail such copy shall not affect the validity of service of
process. If any agent appointed by Borrower refuses to accept service, Borrower
hereby agrees that service upon it by mail shall constitute sufficient notice.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of either Lender to bring proceedings
against Borrower in courts of any jurisdiction.
10.7 Entire Agreement. This Agreement with Exhibits and Schedules
----------------
and the other Loan Documents embody the entire agreement and understanding
between the par-ties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
10.8 Separability of Provisions. In case any one or more of the
--------------------------
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
10.9 Indemnification. Borrower shall indemnify, defend, protect and
---------------
hold harmless Lender, and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Lender Expenses in any way suffered, incurred, or paid as
a result of or in any way arising out of, following, or consequential to
transactions between Lender and Borrower under the Loan Documents (including
without limitation reasonable attorneys fees and expenses), except for losses
caused by Lender's gross negligence or willful misconduct.
10.10 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
26
10.11 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, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
10.12 Survival. All covenants, representations and warranties made
--------
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Lender
with respect to the expenses, damages, losses, costs and liabilities described
in Section 10.9 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against any of them have
run.
27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above' written.
"Borrower"
XXXXXXXX.XXX, INC.
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------
Title: COO/CFO
-------------------------------
000 Xxxxxxxxx Xxxx Xxxxxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attn: Chief Financial Officer
Fax: 000-000-0000
Email: xxxxxxxx@xxxxxxxx.xxx
"Lender"
SAND HILL CAPITAL II, L.P.
By: /s/ Xxxxxx Xxxxx
---------------------------------
Title: General Partner
--------------------------------
0000 Xxxx Xxxx Xxxx, Xxxx. 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxx
Fax: (000) 000-0000
Email: xxxxxx@xxxxxxxxxxxxxxx.xx
-------------------------------
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