EXHIBIT 10.17
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of March 26, 1999,
by and 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 Wellesley Office Park, 00 Xxxxxxx
Xxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxxxxxxxxxx 00000, doing business under the name
"Silicon Valley East" ("Bank") and SPEECHWORKS INTERNATIONAL, INC., a Delaware
corporation with its chief executive office located at 000 Xxxxxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxxxxx 00000 ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms 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 loan advance under the
Committed Revolving Line.
"Affiliate" means, with respect to any Person, any Person that
owns or Controls (as defined below) 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 Person's managers and members.
"Agreement" means this Loan and Security Agreement.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; and Bank's reasonable attorneys'
fees and expenses incurred 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,
unless a final court of competent jurisdiction finds the Bank acted
with gross negligence or willful misconduct.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning assets or
liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
"Borrowing Base" means an amount equal to eighty percent
(80.0%) of Eligible Accounts, as determined by Bank with reference to
the most recent Borrowing Base Certificate delivered by Borrower.
"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.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A
attached hereto.
"Committed Revolving Line" means a credit extension of up to
Seven Hundred Fifty Thousand Dollars ($750,000.00).
"Committed Equipment Line No. 1" means a credit extension of
up to One Million Dollars ($1,000,000.00).
"Committed Equipment Line No. 2" means a credit extension of
up to Five Hundred Thousand Dollars ($500,000.00).
"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
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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.
"Control" Person(s) shall be deemed to Control another Person
if such Person(s) directly or indirectly possess the power to direct or
cause the direction of the management and policies of such other
Person, whether through ownership of voting securities, by contract, or
otherwise.
"Credit Extension" means each Advance, Equipment Advance,
Letter of Credit or any other extension of credit by Bank for the
benefit of Borrower hereunder.
"Current Liabilities means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its
Subsidiaries, as at such date, plus, to the extent not already included
therein, all outstanding Credit Extensions made under this Agreement,
including all indebtedness that is payable under demand or within one
year from the date of determination thereof unless such Indebtedness is
renewable or extendable at the option of Borrower or any Subsidiary to
a date more than one year from the date of determination, but excluding
Subordinated Debt and deferred maintenance revenues of the Borrower.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of
Borrower's representations and warranties to Bank set forth in Section
5.4. Unless otherwise agreed to by Bank in writing, Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has failed to
pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) or more of whose Accounts the account debtor has
failed to pay within ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor,
including Affiliates, whose total obligations to Borrower
exceed twenty-five percent (25%) of all Accounts (except for
United Airlines, which shall be fifty percent (50.0%) of all
Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by
Bank;
(d) Accounts with respect to which the account debtor
does not have its principal place of business in the United
States;
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(e) Accounts with respect to which the account debtor
is a federal, state, or local governmental entity or any
department, agency, or instrumentality thereof, except for
those Accounts of the United States or any department, agency
or instrumentality thereof as to which the payee has assigned
its rights to payment thereof to Bank and the assignment has
been acknowledged, pursuant to the Assignment of Claims Act of
1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable
to the account debtor, but only to the extent of any amounts
owing to the account debtor (sometimes referred to as "contra"
accounts, e.g. accounts payable, customer deposits, credit
accounts etc.);
(g) Accounts generated by demonstration or
promotional equipment, with respect to which payment is
conditional, or with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on
approval, xxxx and hold, or other terms by reason of which the
payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor
is an Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as
to which Bank believes, in its sole discretion, that there may
be a basis for dispute (but only to the extent of the amount
subject to such dispute or claim), or is subject to any
insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably
determines after reasonable inquiry and consultation with
Borrower to be doubtful.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section
2.1.3.
"Equipment Availability End Date No. 1" has the meaning set
forth in Section 2.1.3.
"Equipment Availability End Date No. 2" has the meaning set
forth in Section 2.1.3
"Equipment Maturity Date No. 1" means May 31, 2002.
"Equipment Maturity Date No. 2" means November 30, 2002.
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"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles defined
by the controlling pronouncements of the Financial Accounting Standards
Board as from time to time amended or supplemented.
"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.
"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, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"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" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
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"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 Bank
in connection with this Agreement, all as amended, extended or restated
from time to time.
"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 under the Loan Documents.
"Maturity Date" means, as applicable, (i) the Revolving
Maturity Date with respect to Advances, and (ii) the Equipment
Maturity Date No. 1 and the Equipment Maturity Date No. 2, as
applicable, with respect to the respective Equipment Advances.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, and any notes,
drafts, instruments, securities, documents of title, or chattel paper,
owned by or payable to Borrower.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement executed in connection with this
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 Bank
may have obtained by assignment or otherwise.
"Payment Date" means the last calendar day of each month
commencing on the first such date after the Closing Date and ending on
the Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the
ordinary course of business;
(e) Indebtedness secured by Permitted Liens; and
(f) Extensions, refinancings, modifications,
amendments and restatements of any items of Permitted
Indebtedness (a) - (e) above, provided that
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the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon
Borrower or 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 the highest rating obtainable
from either Standard & Poor's Corporation or Xxxxx'x Investors
Service, Inc. and (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein
issued by Bank.
"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
consented 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 over
any of Bank'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 acquired and improvements thereon, and the
proceeds of such equipment;
(d) Leases or subleases and licenses or sublicenses
granted to others in the ordinary course of Borrower's
business not interfering in any material respect with the
business of Borrower and its Subsidiaries taken as a whole,
and any interest or title of a lessor, licensor, sublicensor
or under any lease or license or sublicense provided that such
leases, subleases, licenses and sublicenses do not prohibit
the grant of the security interest granted hereunder; and
(e) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of
the type described in clauses (a) through (c) above, PROVIDED
that any extension, renewal or replacement Lien
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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.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
consolidated cash, cash equivalents, accounts receivable and
investments with maturities of fewer than 90 days of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller
of Borrower.
"Revolving Maturity Date" means one day prior to the date
which is one (1) year from the Closing Date.
"Schedule" means the schedule of exceptions attached hereto,
if any.
"Subordinated Debt" means any debt incurred by Borrower, the
payment of which and security interest relating thereto, if any, is
subordinated to the debt (and security interest, if applicable) owing
by Borrower to Bank on terms acceptable to Bank (and identified as
being such by Borrower and Bank).
"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.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries MINUS,
without duplication, (i) the sum of any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and
research and development expenses except prepaid expenses, and (c) all
reserves not already deducted from assets AND (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, 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 specifically excluding Subordinated
Debt.
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1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically
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" or "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
2.1 CREDIT EXTENSIONS. Subject to and upon the terms and conditions
hereof, Borrower promises to pay to the order of Bank, in lawful money of the
United States of America, the aggregate unpaid principal amount of all Credit
Extensions made by Bank to Borrower hereunder. Borrower shall also pay interest
on the unpaid principal amount of such Credit Extensions at rates in accordance
with the terms thereof.
2.1.1 (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed (i) the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the face amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit). Subject to the
terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1 may be repaid and reborrowed at any time during the term of this
Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify
Bank by facsimile transmission or telephone no later than 3:00 p.m. Eastern
time, on the Business Date that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of EXHIBIT B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer as designated in writing in
accordance with the terms hereof, or without instructions if in Bank's
discretion such Advances are necessary to meet Obligations which have become due
and remain unpaid. Bank shall be entitled to rely on any telephonic notice given
by a person who Bank reasonable believes to be a Responsible Officer or a
designee thereof as designated in writing in accordance with the terms hereof,
and Borrower shall indemnify and hold Bank harmless for any damages or loss
suffered by Bank as a result of such reliance. Bank will credit the amount of
Advances made under this Section 2.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit for the account of
Borrower in an aggregate
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outstanding face amount not to exceed (i) the lesser of the Committed Revolving
Line or the Borrowing Base, whichever is less, minus (ii) the then outstanding
principal balance of the Advances; PROVIDED that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) shall not in any case exceed Two Hundred Thousand
Dollars ($200,000.00). Each Letter of Credit shall have an expiry date no later
than one hundred eighty (180) days after the Revolving Maturity Date provided
that Borrower's Letter of Credit reimbursement obligations shall be secured by
cash on terms acceptable to Bank at any time after the Revolving Maturity Date
if the term of this Agreement is not extended by Bank. 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 form of standard
Application and Letter of Credit Agreement.
(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, under all circumstances whatsoever.
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 the issuance of any Letter of Credit,
or any repayment obligation arising under any Letters of Credit.
(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 cable charges)
in United States currency at the then prevailing rate or exchange in San
Francisco, California, for sales of that other currency for cable 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 under the
Committed 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 Committed Revolving Line shall be reduced by the amount of
such reserve for so long as such letter of credit remains outstanding.
2.1.3 EQUIPMENT ADVANCES.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make advances (each an "Equipment Advance" and
collectively, the "Equipment Advances") to Borrower: (i) at any time after the
Closing Date through May 31, 1999 (the "Equipment Availability End Date No. 1")
in the aggregate outstanding amount not to exceed the Committed Equipment Line
No. 1(the "Equipment Line No. 1"), and (ii) at any time after the Equipment
Availability End Date No. 1 through November 30, 1999 (the "Equipment
Availability End Date No. 2"). To evidence the Equipment Advances, Borrower
shall deliver to Bank, at the time of each Equipment Advance request, an invoice
for the equipment to be financed. The Equipment Advances shall be used only to
finance Equipment purchased after
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June 30, 1998 and shall not exceed One Hundred Percent (100%) of the invoice
amount of such equipment approved from time to time by Bank, excluding taxes,
shipping, warranty charges, freight discounts and installation expense. Borrower
may prepay any scheduled payment hereunder without penalty.
(b) Interest shall accrue from the date of each Equipment
Advance at the per annum rate equal to the aggregate of the Prime Rate, PLUS
Three Quarters of One Percent (0.75%), and shall be payable monthly on the
Payment Date of each month. Any Equipment Advances made pursuant to the
Equipment Line No. 1 that are outstanding on the Equipment Availability End Date
No. 1 will be payable in Thirty-Six (36) equal monthly installments of
principal, plus all accrued interest, beginning on the Payment Date of the month
following Equipment Availability End Date No. 1 and ending on the Equipment
Maturity Date No. 1. Any Equipment Advances made pursuant to the Equipment Line
No. 2 that are outstanding on the Equipment Availability End Date No. 2 will be
payable in Thirty-Six (36) equal monthly installments of principal, plus all
accrued interest, beginning on the Payment Date of the month following Equipment
Availability End Date No. 2 and ending on the Equipment Maturity Date No. 2.
Equipment Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Eastern time one (1)
Business Day before the day on which the Equipment Advance is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Office or its designee and include a copy of the invoice
for the Equipment to be financed.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1 and 2.1.2 of this
Agreement is greater than (i) the lesser of the Committed Revolving Line or the
Borrowing Base, minus (ii) the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit), Borrower shall immediately
pay to Bank, in cash, the amount of such excess.
2.3 INTEREST RATES, PAYMENTS AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any
Advances shall bear interest on the average daily outstanding principal balance
thereof, at a per annum rate equal to the aggregate of the Prime Rate, PLUS One
Half of One Percent (0.50%).
(b) DEFAULT RATE. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to the lesser
of (i) three (3) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default, and (ii) the
maximum interest rate allowed by applicable law.
(c) PAYMENTS. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number ______________ for payments
of principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of
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all debits which Bank has made against Borrower's accounts. Any interest not
paid when due shall be compounded by becoming a part of the Obligations, and
such interest shall thereafter accrue interest at the rate then applicable
hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. 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.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, 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 payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Eastern
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Document 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 Bank the following:
(a) FACILITY FEE. A Facility Fee equal to Seven Thousand Five
Hundred Dollars ($7,500.00), which fee shall be due on the Closing Date and
shall be fully earned and non-refundable;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower's performed from time to time by Bank or its agents;
(c) BANK EXPENSES. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 ADDITIONAL COSTS. In case any law, regulation, treaty or 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):
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(a) subjects Bank 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 Bank imposed by
the United States of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by,
Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
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 Bank of a statement of the amount and setting forth Bank'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
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have 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. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, inform and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Security of Borrower with respect to
articles, by laws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) a Negative Pledge Agreement covering intellectual
property;
(d) an option of Borrower's counsel;
(e) financing statements (Forms UCC-1);
(f) insurance certificate;
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(g) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof;
(h) Certificates of Good Standing and Foreign Qualification;
and
(i) 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. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank 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 Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank'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 from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank'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. Bank (through any of its officers, employees, or
agents) shall have the right upon reasonable prior notice, from time to time
during Borrower's usual business hours, without causing any disruption of
Borrower's operations (prior to an Event of Default) to
14
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 follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is
a corporation duly existing and in good standing under the laws of its state of
incorporations 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 require that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
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 Articles/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 have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered (or in the case of certain services, is
obligated to be performed) to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor whose accounts are included in any Borrowing
Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects
of good and marketable quality, free from all natural defects.
5.6 NAME: LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, Borrower has not done business and will not without at least
thirty (30) day s prior written notice to Bank 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.
5.7 LITIGATION. 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 have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral.
15
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank 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 them 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 Bank on or about the Closing Date.
5.9 SOLVENCY. Borrower is able to pay its debts (including trade debts)
as they mature.
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 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 not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.11 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any 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 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.
16
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.
5.15 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
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.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitments 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 have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENTAL 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 have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver
to Bank: (a) as soon as available, but in any event within thirty (30) days
after the end of each month, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such period,
in a form and certified by an officer of Borrower reasonably acceptable to Bank;
(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 reasonable acceptable to Bank; (c)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could be reasonably likely
to result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000.00) or more; and (d) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
Within thirty (30) days after the last day of each month with respect
to which either (i) Obligations under the Committed Revolving Line are
outstanding, or (ii) Advances were made or
17
Letters of Credit were issued, Borrower shall deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer in substantially the form of EXHIBIT
C hereto, together with aged listings of accounts receivable.
Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of EXHIBIT
D hereto.
Bank shall have the right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted: (a) no more often than every twelve (12) months, and (b) only when
either (i) Obligations under the Committed Revolving Credit Line are outstanding
or (ii) Advances were made or Letters of Credit were issued during the preceding
twelve (12) month period. Notwithstanding the foregoing, the Bank shall have the
right to audit Borrower's Accounts at Borrower's expense at any time after the
occurrence of an Event of Default.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payments or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, 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 taxes payments and
withholding taxes required of it by applicable law, 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 Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if (i) the amount or validity of such payment is contested in good faith
by appropriate proceedings, (ii) Borrower or Subsidiary, as the case may be, has
established proper reserves (to the extent required by GAAP) and (iii) no lien
other than a Permitted Lien results.
6.6 INSURANCE
(a) Borrower, at is expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, 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.
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(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrower shall maintain depository and
operating accounts with Bank.
6.8 ADJUSTED QUICK RATIO. Borrower shall maintain, as of the last day
of each calendar month, a ratio of Quick Assets to Current Liabilities of at
least 1.25 to 1.0.
6.9 TANGIBLE NET WORTH. Borrower shall maintain, as of the last day of
each calendar month, a Tangible Net Worth of not less than Three Million Dollars
($3,000,000.00).
6.10 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 Bank 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 Bank 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 inventory
in the ordinary course of business, (ii) of licenses and similar arrangements
for the use of the property of Borrower or its Subsidiaries in the ordinary
course of business; (iii) that constitute payment of normal and usual operating
expenses in the ordinary course of business; or (iv) of worn-out or obsolete
Equipment.
7.2 CHANGES IN BUSINESS. OWNERSHIP, OR MANAGEMENT, 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 Borrower's ownership of more than fifty percent (50.0%) in
the aggregate, or suffer a material change in Borrower's management. Borrower
will not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations, with the exception of sales offices which do not issue invoices for
accounts, or contain any Equipment or Inventory.
19
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 UNLESS: (i)
there is no Event of Default hereunder, and (ii) that such merger, consolidation
or acquisition will not result, on a prospective basis, in the breach of any of
the covenants, terms and conditions hereunder, and (iii) that such merger,
consolidation or acquisition is in the same or similar line of business as the
Borrower, and (iv) the Borrower is the surviving legal entity.
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.
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.
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.
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 favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated 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 Bank's
prior written consent.
7.10 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
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 Advance 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
20
could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank'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, when due, any of the
Obligations.
8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation under Sections
6.3, 6.6, 6.7, 6.8, or 6.9 or violates any of the covenants contained in Article
7 of this Agreement; or
(b) 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 Bank 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 thirty (30) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the thirty (30) day period or cannot after diligent attempts by Borrower
be cured within such thirty (30) 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 Default (provided
that no Advances will be required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a Material Adverse
Effect, 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 Bank's security interests in the Collateral;
8.4 ATTACHMENT. If any material 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 thirty (30)
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
21
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 30 days (provided that no
Advances 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 One Hundred Thousand Dollars
($100,000) or that could 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 Bank;
8.8 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); 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 Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, 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 Bank);
(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 Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and
22
pay such amounts, and (ii) pay in advance all Letters of Credit fees scheduled
to be paid or payable over the remaining term of the Letters of Credit:
(d) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably considers
advisable;
(e) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires, and to make the Collateral available to Bank as Bank may designate.
Borrower authorizes Bank 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
Bank'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 Bank a license to enter such
premises and to occupy the same, without charge;
(f) Without notice to Borrower set off and apply to the Obligations any
and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness
at any time owing to or for the credit or the account of Borrower held by Bank:
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this Section 9.1, 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 Bank's exercise of its rights under this
Section 9.1, Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit;
(h) Sell 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 Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order it deems appropriate;
(i) Bank may credit bid and purchase any Collateral at any public sale,
or at any private sale as permitted by law; and
(j) 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
Bank (and any of Bank'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 Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that
23
may come into Bank'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; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) 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 (g) provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact under this Section 9.2, and
each and every one of Bank's rights and powers, being coupled with an interest,
is irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. Upon the occurrence and during the continuance of an
Event of Default, 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 Agreement, then Bank 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
Committed Revolving Line as Bank deems necessary to protect Bank 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 Bank deems prudent.
Any amounts so paid or deposited by Bank shall constitute Bank 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 Bank shall not constitute an agreement by Bank to make similar payments
in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices. Bank 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; (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. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other loan documents shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in
24
equity. No exercise by Bank of one right or remedy shall be deemed an election,
and no waiver by Bank of any Event of Default on Borrower's part shall be deemed
a continuing waiver. No delay by Bank shall constitute a waiver, election, or
acquiescence by it. No waiver by Bank shall be effective unless made in a
written document signed on behalf of Bank and then shall be effective only in
the specific instance and for the specific purpose for which it was given.
9.7 DEMAND: PROTEST. Except as otherwise provided herein, 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 Bank on which
Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower SpeechWorks International, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xx. Xxxxxxx Xxxxxxxxx, Chief Financial Officer
FAX: (000) 000-0000
with a copy to Xxxx X. Xxxx. Esquire
SpeechWorks International, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
FAX: (000) 000-0000
If to Bank Silicon Valley Bank
00 Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xx. Xxxxx X. Xxxxxxxxx, Assistant
Vice President
FAX: (000) 000-0000
with a copy to: Xxxxxx & Xxxxxxxxxx LLP
Xxxxx Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Xxx: Xxxxx X. Xxxxxxx, Esquire
FAX: (000) 000-0000
25
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE: JURY WAIVER
The law of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETFS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND. AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSEUS, BORROWER ACCEPTS JURISDICTION OF
THE COURTS AND VENUE IN SANTA XXXXX COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WANE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties: provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have 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 hereunder.
12.2 INDEMNIFICATION. Borrower shall, indemnify, defend, protect and
hold harmless Bank 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 Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
26
12.3 TIME OF ESSENCE. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING. INTEGRATION. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 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 Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run:
provided that so long as the obligations referred to in the first sentence of
this Section 12.7 have been satisfied, and Bank has no commitment to make any
Credit Extensions or to make any other loans to Borrower, Bank shall release all
security interests granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.
12.8 CONFIDENTIALITY. In handling any confidential information Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (I) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as Bank may deem
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
27
12.9 COUNTERSIGNATURE. This Agreement shall become effective only when
it shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
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.
SPEECH WORKS INTERNATIONAL, INC.
By: /s/ XXXXXX X. XXXXXXXXX
-------------------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Chief Executive Officer
By: /s/ XXXXXXX XXXXXXXXX
-------------------------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: Chief Financial Officer
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
SILICON VALLEY BANK
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
(Signed in Santa Xxxxx County, California)
28
FIRST LOAN MODIFICATION AGREEMENT
This First Loan Modification Agreement is entered into as of November
24, 1999, by and between SPEECHWORKS INTERNATIONAL, INC., a Delaware corporation
with its chief executive office located at 000 Xxxxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000 ("Borrower") and SILICON VALLEY BANK, a California-chartered
bank ("Bank), with its principal place of business at 0000 Xxxxxx Xxxxx, Xxxxx
Xxxxx, XX 00000 and with a loan production office located at Wellesley Office
Park, 00 Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxx, XX 00000, doing business under
the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of March 26, 1999, evidenced by, among other documents, a
certain Loan and Security Agreement dated as of March 26, 1999 (the "Loan
Agreement"). The Loan Agreement established in favor of Borrower: (1) a working
capital line of credit in the maximum principal amount of Seven Hundred Fifty
Thousand Dollars ($750,000.00) (the "Committed Revolving Line"), (ii) an
equipment line of credit in the maximum principal amount of One Million Dollars
($1,000,000.00) (the "Committed Equipment Line NO. 1"), and (iii) an equipment
line of credit in the maximum principal amount of Five Hundred Thousand Dollars
($500,000.00) (the "Committed Equipment Line NO. 2"). Capitalized terms used but
not otherwise defined herein shall have the same meaning as in the Loan
Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the indebtedness is secured by the
Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT.
1. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
"Committed Revolving Line" means a credit extension of
up to Seven Hundred Fifty Thousand Dollars
($750,000.00)."
and inserting in lieu thereof the following:
"Committed Revolving Line" means a credit extension of
up to One Million Three Hundred Thousand Dollars
($1,300,000.00)."
2. The Loan Agreement shall be amended by deleting the following
text appearing as the first sentence of Section 2.1.2(a)
thereof entitled "Letters of Credit".
"Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of
Credit for the account of Borrower in an aggregate
outstanding face amount not to exceed (i) the lesser of
the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the then outstanding
principal balance of the Advances; PROVIDED that the
face amount of outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit and any Letter
of Credit Reserve) shall not in any case exceed Two
Hundred Thousand Dollars ($200,000.00)."
and inserting in lieu thereof the following:
"Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of
Credit for the account of Borrower in an aggregate
outstanding face amount not to exceed (i) the Committed
Revolving Line or the Borrowing Base, whichever is less,
minus (ii) the then outstanding principal balance of the
Advances; PROVIDED that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve)
shall not in any case exceed One Million Three Hundred
Thousand Dollars ($1,300,000.00)."
3. The Borrower ratifies, confirms and reaffirms, all and
singular, the terms and conditions of a certain Negative
Pledge Agreement dated as of March 26, 1999 between Borrower
and Bank, and acknowledges, confirms and agrees that said
Negative Pledge Agreement shall remain in full force and
effect.
4. The Borrowing Base Certificate appearing as EXHIBIT C to the
Loan Agreement is hereby replaced with the Borrowing Base
Certificate attached as EXHIBIT A hereto.
5. The Compliance Certificate appearing as EXHIBIT D to the Loan
Agreement is hereby replaced with the Compliance Certificate
attached as EXHIBIT B hereto.
4. FEE. Borrower shall pay to Bank a fully earned, non-refundable modification
fee equal to One Thousand Dollars ($1,000.00), which fee shall be due on the
date hereof. The Borrower shall also reimburse Bank for all legal fees and
expenses incurred in connection with this amendment to the Existing Loan
Documents.
2
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker will be
released by virtue of this Loan Modification Agreement.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Xxxxx County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
3
This Loan Modification Agreement is executed as a sealed instrument
under the laws of the Commonwealth of Massachusetts as of the date first written
above.
BORROWER: BANK:
SPEECHWORKS INTERNATIONAL, INC. SILICON VALLEY BANK, doing business as SILICON VALLEY EAST
By: /s/ Xxxxxxx Xxxxxxxxx By: /s/ Xxxx Xxxxxxxxx
Name: Xxxxxxx Xxxxxxxxx Name: Xxxx Xxxxxxxxx
Title: Chief Financial Officer and Treasurer Title: VP
SILICON VALLEY BANK
By: /s/ Xxxxxxx X. Xxxxxxx
Name: Xxxxxxx X. Xxxxxxx
Title: AVP
(signed in Santa Xxxxx County, California)
4
SECOND LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement is entered into as of JUNE 1,
2000, by and between SPEECHWORKS INTERNATIONAL, INC., a Delaware corporation
with its chief executive office located at 000 Xxxxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000 ("Borrower') and SILICON VALLEY BANK, a California-chartered
bank ("Bank'), with its principal place of business at 0000 Xxxxxx Xxxxx, Xxxxx
Xxxxx, XX 00000 and with a loan production office located at Wellesley Office
Park, 00 Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxx, XX 00000, doing business under
the name `Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of March 26, 1999, evidenced by, among other documents, a
certain Loan and Security Agreement dated as of March 26, 1999, as amended by a
certain First Loan Modification Agreement dated as of November 24, 1999 (as
amended, the "Loan Agreement"). The Loan Agreement established in favor of
Borrower: (i) a working capital line of credit in the maximum principal amount
of One Million Three Hundred Thousand Dollars ($1,300,000.00) (the "Committed
Revolving Line"), (ii) an equipment line of credit in the maximum principal
amount of One Million Dollars ($1,000,000.00) (the "Committed Equipment Line No.
1"), and (iii) an equipment line of credit in the maximum principal amount of
Five Hundred Thousand Dollars ($500,000.00) (the "Committed Equipment Line No.
2"). Capitalized terms used but not otherwise defined herein shall have the same
meaning as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the
Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT.
1. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
"Borrowing Base" means an amount equal to eighty percent
(80.0%) of Eligible Accounts, as determined by Bank with
reference to the most recent Borrowing Base Certificate
delivered by Borrower."
and inserting in lieu thereof the following:
"Borrowing Base" means an amount equal to: (i) eighty
percent (80.0%) of Eligible Accounts, PLUS (ii) eighty
percent (80.0%) of Eligible Foreign Accounts, each as
determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower."
2. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
"Committed Revolving Line" means a credit extension of
up to One Million Three Hundred Thousand Dollars
($1,300,000.00)."
and inserting in lieu thereof the following:
"Committed Revolving Line" means a credit extension of
up to Two Million Dollars ($2,000,000.00)."
3. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
"Revolving Maturity Date" means one day prior to the
date which is one (1) year from the Closing Date."
and inserting in lieu thereof the following:
"Revolving Maturity Date" means June 1, 2001."
4. The Loan Agreement shall be amended by incorporating into
Section 1.1 thereof the following definitions:
"IPO" means an initial registered public offering of
shares of the Borrower's common stock in compliance with
the Securities Act of 1933, as amended (or any successor
law), which shares are listed on a recognized national
securities exchange or approved for quotation on
NASDAQ-AMEX.
"Eligible Foreign Accounts" are Accounts for which the
account debtor does not have its principal place of
business in the United States but are: (i) covered by
credit insurance satisfactory to Bank, less any
deductible; or (ii) supported by letter(s) of credit
acceptable to Bank; or (iii) that Bank approves in
writing.
5. The Loan Agreement shall be amended by deleting the following
text appearing as the first sentence of Section 2.1.2(a)
thereof entitled "Letters of Credit":
2
"Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of
Credit for the account of Borrower in an aggregate
outstanding face amount not to exceed (i) the Committed
Revolving Line or the Borrowing Base, whichever is less,
minus (ii) the then outstanding principal balance of the
Advances; provided that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve)
shall not in any case exceed One Million Three Hundred
Thousand Dollars ($1,300,000.00)."
and inserting in lieu thereof the following:
"Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of
Credit for the account of Borrower in an aggregate
outstanding face amount not to exceed (i) the Committed
Revolving Line or the Borrowing Base, whichever is less,
minus (ii) the then outstanding principal balance of the
Advances; provided that the face amount of outstanding
Letters of Credit (including drawn but Unreimbursed
Letters of Credit and any Letter of Credit Reserve)
shall not in any case exceed Two Million Dollars
($2,000,000.00)."
6. The Loan Agreement shall be amended by deleting the following
text appearing as the fourth paragraph of Section 6.3 thereof
entitled "Financial Statements, Reports, Certificates":
"Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense,
provided that such audits will be conducted: (a) no more
often than every twelve (12) months, and (b) only when
either (i) Obligations under the Committed Revolving
Line are outstanding or (ii) Advances were made or
Letters of Credit were issued during the preceding
twelve (12) month period. Notwithstanding the foregoing,
the Bank shall have the right to audit Borrower's
Accounts at Borrower's expense at any time after the
occurrence of an Event of Default."
and inserting in lieu thereof the following:
"Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense,
provided that such audits will be conducted: (a) no more
often than every twelve (12) months, and (b) only when
either (i) Obligations under the Committed Revolving
Line are outstanding or (ii) Advances were made during
the preceding twelve (12) month period.
3
Notwithstanding the foregoing, the Bank shall have the
right to audit Borrowers Accounts at Borrower's expense
at any time after the occurrence of an Event of
Default."
7. The Loan Agreement shall be amended by deleting the following
text appearing as Sections 6.8 and 6.9 thereof:
"6.8 ADJUSTED QUICK RATIO. Borrower shall maintain, as
of the last day of each calendar month, a ratio of Quick
Assets to Current Liabilities of at least 1.25 to 1.0.
6.9 TANGIBLE NET WORTH. Borrower shall maintain, as of
the last day of each calendar month, a Tangible Net
Worth of not less than Three Million' Dollars
($3,000,000.00)."
and inserting in lieu thereof the following:
"6.8 ADJUSTED QUICK RATIO. Borrower shall maintain, as
of the last day of each calendar month, a ratio of Quick
Assets to Current Liabilities of at least 1.50 to 1.0.
6.9 TANGIBLE NET WORTH. Borrower shall maintain, as of
the last day of each calendar month, a Tangible Net
Worth of not less than the GREATER of (i) and (ii),
below:
(i) each of the following: (a) Twenty
Million Dollars ($20,000,000.00) for the
months ending June 30, 2000, July 31, 2000
and August 31, 2000, (b) Fifteen Million
Dollars ($15,000,000.00) for the months
ending September 30, 2000, October31, 2000,
November30, 2000 and December 31,2000, AND
(c) Twelve Million Dollars ($12,000,000.00)
for the month ending January 31, 2001, and
each month thereafter.
(ii) fifty percent (50%) of the cash
received by Borrower from an IPO."
8. The Borrower ratifies, confirms and reaffirms, all and
singular, the terms and conditions of a certain Negative
Pledge Agreement dated as of March 26, 1999 between Borrower
and Bank, and acknowledges, confirms and agrees that said
Negative Pledge Agreement shall remain in full force and
effect.
9. The Borrowing Base Certificate appearing as EXHIBIT C to the
Loan Agreement is hereby replaced with the Borrowing Base
Certificate attached as EXHIBIT A hereto.
4
10. The Compliance Certificate appearing as EXHIBIT D to the Loan
Agreement is hereby replaced with the Compliance Certificate
attached as EXHIBIT B hereto.
4. FEE. Borrower shall pay to Bank a fully earned, non-refundable modification
fee equal to Ten Thousand Dollars ($10,000.00), which fee shall be due on the
date hereof. The Borrower shall also reimburse Bank for all legal fees and
expenses incurred in connection with this amendment to the Existing Loan
Documents.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker will be
released by virtue of this Loan Modification Agreement.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Xxxxx County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
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This Loan Modification Agreement is executed as a sealed instrument
under the laws of the Commonwealth of Massachusetts as of the date first written
above.
BORROWER: BANK:
SPEECHWORKS INTERNATIONAL, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Xxxxxxx Xxxxxxxxx By:
Name: Xxxxxxx Xxxxxxxxx Name:
Title: Chief Financial Officer and Treasurer Title:
SILICON VALLEY BANK
By: ____________________________________________
Name:
___________________________________________
Title:
__________________________________________
(signed in Santa Xxxxx County, California)
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