1
EXHIBIT 10.31
================================================================================
LOAN AGREEMENT
Dated as of December 1, 1997
between
DIGITAL GENERATION SYSTEMS, INC.,
as Borrower,
and
VENTURE LENDING & LEASING II, INC.,
as Lender
================================================================================
2
TABLE OF CONTENTS
Page
----
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 - THE LOANS AND RELATED TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Equipment Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Limitations on Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Notes Evidencing Loans; Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Procedures for Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Terminal Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Interest Rate Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.9 Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.10 Prepayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.11 Lender's Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.12 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.13 Issuance of Warrant to Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Due Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Authorization, Validity and Enforceability . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Copyrights, Patents, Trademarks and Licenses . . . . . . . . . . . . . . . . . . . . . . 10
3.5 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.6 No Litigation, Claims or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.7 Correctness of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.8 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.9 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.10 No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.11 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 4 - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Conditions to Initial Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Conditions to All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 5 - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Notice to Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Managerial Assistance from Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Accounting Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.7 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8 Taxes and Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.10 Locations of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
i
3
TABLE OF CONTENTS
-----------------
(continued)
Page
----
ARTICLE 6 - NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 7 - EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 8 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.3 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.4 Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.5 Unenforceable Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.6 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.7 Indemnification; Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.8 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.9 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.11 Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.12 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
LIST OF EXHIBITS
Exhibit "A" Form of Note
Exhibit "B" Form of Borrowing Request
Exhibit "C" Form of Security Agreement
Exhibit "D" Form of Warrant
Exhibit "E" Form of Borrowing Base Certificate
4
LOAN AGREEMENT
This LOAN AGREEMENT is entered into as of December 1, 1997,
between DIGITAL GENERATION SYSTEMS, INC., a California corporation
("Borrower"), and VENTURE LENDING & LEASING II, INC., a Maryland corporation
("VLLI" or "Lender").
WHEREAS, Lender has agreed to make available to Borrower
equipment acquisition term loan and working capital term loan facilities upon
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
The definitions appearing in this Agreement or any supplement
or addendum to this Agreement, shall be applicable to both the singular and
plural forms of the defined terms:
"AFFILIATE" means any Person directly or indirectly
controlling, controlled by, or under common control with, Borrower.
"Controlling," "controlled by" and "under common control with" means direct or
indirect possession of the power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided that control shall be conclusively presumed when any
Person or affiliated group directly or indirectly owns ten percent (10%) or
more of the securities having ordinary voting power for the election of
directors of a corporation.
"ACCOUNT" means, for purposes of calculating the Borrowing
Base, a right to payment for goods sold or leased or for services rendered by
Borrower or any wholly owned subsidiary of Borrower in the ordinary course of
its business, provided that such Account is free and clear of all Liens except
those in favor of Lender.
"AGREEMENT" means this Loan Agreement as it may be amended or supplemented from
time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. Section 101, et seq.), as amended.
"BASIC INTEREST" means the interest payable on the outstanding
balance of each Loan at the applicable Designated Rate.
"BORROWING BASE" means, as of any date of determination, an
amount equal to eighty percent (80%) of Accounts existing as of such date.
1
5
"BORROWING DATE" means the Business Day on which the proceeds
of a Loan are disbursed by Lender.
"BORROWING REQUEST" means a written request from Borrower in
substantially the form of Exhibit "B" hereto, requesting the funding of one or
more Loans on a particular Borrowing Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City or San Francisco are
authorized or required by law to close.
"CLOSING DATE" means the date of this Agreement.
"COLLATERAL" has the meaning ascribed thereto in the Security
Agreement.
"COMMITMENT" means, with respect to each of the Equipment Loan
and the Term Loan facilities described in Sections 2.1 and 2.2 hereof, the
obligation of Lender to make Loans to Borrower in an aggregate, original
principal amount not exceeding Five Million Five Hundred Thousand Dollars
($5,500,000).
"DEFAULT" means an event which with the giving of notice,
passage of time, or both would constitute an Event of Default.
"DEFAULT RATE" is defined in Section 2.9.
"DESIGNATED RATE" means a fixed rate of interest per annum
that is (i) for each Equipment Loan, eight and 50/100 percent (8.50%) and (ii)
for each Term Loan, eight and 50/100 percent (8.50%).
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any governmental
authorities, in each case relating to environmental, health, or safety matters.
"EQUIPMENT LOAN" means the credit facility in the maximum
original principal amount of Two Million Dollars ($2,000,000) provided for in
Section 2.1 of this Agreement, and any advance thereunder by Lender.
"EVENT OF DEFAULT" means any event described in Article 7.
"GAAP" means generally accepted accounting principles and
practices consistent with those principles and practices promulgated or adopted
by the Financial Accounting Standards Board and the Board of the American
Institute of Certified Public Accountants, their respective
2
6
predecessors and successors. Each accounting term used but not otherwise
expressly defined herein shall have the meaning given it by GAAP.
"INDEBTEDNESS" of any Person means at any date, without
duplication and without regard to whether matured or unmatured, absolute or
contingent: (i) all obligations of such Person for borrowed money; (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments; (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising
in the ordinary course of business; (iv) all obligations of such Person as
lessee under capital leases; (v) all obligations of such Person to reimburse or
prepay any bank or other Person in respect of amounts paid under a letter of
credit, banker's acceptance, or similar instrument, whether drawn or undrawn;
(vi) all obligations of such Person to purchase securities which arise out of
or in connection with the sale of the same or substantially similar securities;
(vii) all obligations of such Person to purchase, redeem, or otherwise acquire,
for cash on a present or deferred basis, any capital stock of such Person or
any warrants, rights or options to acquire such capital stock, now or hereafter
outstanding, except to the extent that such obligations remain performable
solely at the option of such Person; (viii) all obligations to repurchase
assets previously sold (including any obligation to repurchase any accounts or
chattel paper under any factoring, receivables purchase, or similar
arrangement); (ix) obligations of such Person under interest rate swap, cap,
collar or similar hedging arrangements; and (x) all obligations of others of
any type described in clause (i) through clause (ix) above guaranteed by such
Person.
"INSOLVENCY PROCEEDING" means (a) any case, action or
proceeding before any court or other governmental authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the benefit
of creditors, composition, marshalling of assets for creditors, or other,
similar arrangement in respect of its creditors generally or any substantial
portion of its creditors, undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code.
"LIEN" means any voluntary or involuntary security interest,
mortgage, pledge, claim, charge, encumbrance, title retention agreement, lease
having the same economic effect as the foregoing or third party interest,
covering all or any part of the property of Borrower or any other Person.
"LOAN" means, as applicable, any advance under the Equipment
Loan or the Term Loan pursuant to Section 2.1 or 2.2 hereof.
"LOAN DOCUMENTS" means, individually and collectively, this
Agreement, each Note, the Security Agreement and any other security or pledge
agreement(s), and all other contracts, instruments, addenda and documents
executed in connection with this Agreement or the extensions of credit which
are the subject of this Agreement.
3
7
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means
(a) a material adverse change in, or a material adverse effect upon, the
operations, business, properties, or financial condition of Borrower; (b) a
material impairment of the ability of Borrower to perform under any Loan
Document; or (c) a material adverse effect upon the legality, validity, binding
effect or enforceability against Borrower of any Loan Document.
"MATURITY DATE" means, with regard to a Loan, the earlier of
(i) its maturity by reason of acceleration, or (ii) its stated maturity date.
"NOTE" means a promissory note substantially in the form of
Exhibit "A" hereto, executed by Borrower evidencing a Loan.
"OBLIGATIONS" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document, owing by
Borrower to Lender, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, liquidated or
unliquidated, now existing or hereafter arising.
"PERMITTED LIEN" means
(a) Involuntary Liens which, in the aggregate,
would not have a Material Adverse Effect and which in any event would
not exceed Three Hundred Thousand Dollars ($300,000);
(b) Liens for current taxes or other governmental
or regulatory assessments which are not delinquent, or which are
contested in good faith by the appropriate procedures and for which
appropriate reserves are maintained;
(c) Purchase money security interests on (or
capital leases of) any property held or acquired by Borrower in the
ordinary course of business securing Indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of acquiring
such property; provided, that such Lien attaches solely to the
property acquired with such Indebtedness and that the principal amount
of such Indebtedness does not exceed one hundred percent (100%) of the
cost of such property; and further provided, that such property is not
equipment which has been financed with proceeds of an Equipment Loan.
(d) Liens in favor of Lender;
(e) bankers' liens, rights of setoff and similar
Liens incurred on deposits made in the ordinary course of business;
(f) materialmen's, mechanics', repairmen's,
employees' or other like Liens arising in the ordinary course of
business and which are not delinquent for more than 45 days or are
being contested in good faith by appropriate proceedings;
4
8
(g) any judgment, attachment or similar Lien,
unless the judgment it secures has not been discharged or execution
thereof effectively stayed and bonded against pending appeal within 30
days of the entry thereof;
(h) licenses or sublicenses of Patents, Patent
Licenses, Trademarks or Trademark Licenses permitted under the
Trademark Collateral Assignment or the Patent Collateral Assignment
(all as defined in the Security Agreement); and
(i) Liens which have been approved by Lender
prior to the Closing Date, including Liens against assets of MediaTech
Inc., a wholly-owned subsidiary of Borrower, in favor of Republic
Acceptance Corporation or a successor commercial or institutional
lender to secure a working capital credit facility; and Liens in favor
of Venture Lending & Leasing, Inc., to secure Borrower's obligations
under that certain Loan Agreement dated as of January 28, 1997, as
amended.
"PERSON" means any individual or entity.
"RELATED PERSON" means any Affiliate of Borrower, or any
officer, employee, director or security holder of Borrower or any Affiliate.
"REPORTING COMPANY" means an issuer subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended.
"SEC" means the Securities and Exchange Commission.
"SECURITY AGREEMENT" means the Security Agreement
substantially in the form of Exhibit "C" hereto.
"TERM LOAN" means the working capital credit facility in the
maximum original principal amount of Three Million Five Hundred Thousand
Dollars ($3,500,000) provided for in Section 2.2 of this Agreement and any
advance by Lender thereunder.
"TERMINAL PAYMENT" means, with respect to each Loan, an amount
payable on the Maturity Date of such Loan equal to fifteen percent (15%) of the
original principal amount of such Loan; provided, however that any Terminal
Payment that is paid with respect to a Loan prior to its originally scheduled
Maturity Date (for example, as a result of acceleration or a permitted
voluntary prepayment) shall be payable in an amount equal to the lesser of (i)
fifteen percent (15%) of the original principal amount of such Loan, or (ii) an
amount which when added to the Basic Interest actually paid to date on the Loan
will provide Lender with a return of fifteen percent (15%) per annum on the
principal amount of the Loan (excluding from such calculation any value
associated with the warrant issued to Lender under Section 2.13).
5
9
"TERMINATION DATE" means the earlier of: (a) the date Lender
may terminate making Loans or extending credit pursuant to the rights of Lender
under Article 7, or (b) December 31, 1998.
"UCC" means the Uniform Commercial Code as enacted in the
applicable jurisdiction, in effect on the Closing Date and as amended from time
to time.
ARTICLE 2 - THE LOANS AND RELATED TERMS AND CONDITIONS
Subject to the terms and conditions of this Agreement, the
following Loans shall be available to Borrower:
2.1 EQUIPMENT LOAN. Subject to the terms and conditions
of this Agreement, Lender agrees to make Loans to Borrower from time to time
from the Closing Date and to the Termination Date in an aggregate principal
amount not exceeding Two Million Dollars ($2,000,000), the proceeds of which
shall be used to finance Borrower's acquisition or carrying of equipment
located at Borrower's customer sites, computer equipment and general purpose
office equipment and related software imbedded in or necessary to the use or
operation of such equipment; provided the aggregate amount advanced to finance
software shall at no time exceed fifty percent (50%) of all Loans advanced
under the Equipment Loan. The Commitment is not a revolving credit commitment,
and Borrower shall not have the right to repay and reborrow hereunder.
2.2 TERM LOAN. Subject to the terms and conditions of
this Agreement, Lender agrees to make Loans to Borrower from time to time from
the Closing Date and to the Termination Date in an aggregate principal amount
not exceeding the lesser of (a) Three Million Five Hundred Thousand Dollars
($3,500,000), and (b) the Borrowing Base. The proceeds of the Term Loan shall
be used by Borrower for working capital and general corporate purposes. The
Commitment is not a revolving credit commitment, and Borrower shall not have
the right to repay and reborrow hereunder.
2.3 LIMITATIONS ON LOANS.
(a) Each Equipment Loan shall be in an amount not
to exceed one hundred percent (100%) of the amount paid or payable by
Borrower to a non-affiliated manufacturer, vendor or dealer for an
item of equipment as shown on an invoice therefor (excluding any
commissions and any portion of the payment relating to the servicing
of the equipment and sales taxes payable by Borrower upon acquisition,
and delivery charges).
(b) Lender shall not be obligated to make any Loan if
at the time of or after giving effect to the proposed Loan Lender
would no longer qualify as: (A) a "venture capital operating company"
under U.S. Department of Labor Regulations Section 2510.3- 101(d),
Title 29 of the
6
10
Code of Federal Regulations, as amended; and (B) a "business
development company" under the provisions of federal Investment
Company Act of 1940, as amended; and (C) a "regulated investment
company" under the provisions of the Internal Revenue Code of 1986, as
amended.
(c) Lender's commitment to advance any Term Loan is
subject to the condition that the aggregate outstanding principal
balance of all Term Loans (both before and after giving effect to any
proposed Term Loan) shall not exceed the Borrowing Base.
(d) Each Term Loan requested by Borrower to be made on
a single Business Day shall be for a minimum principal amount of Five
Hundred Thousand Dollars ($500,000), except to the extent the
remaining Commitment is a lesser amount.
2.4 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan and
Basic Interest and the Terminal Payment thereon, shall be evidenced by a
separate Note payable to the order of Lender substantially in the form of
Exhibit "A" to this Agreement, in the principal amount of the Loan. Each Note
shall be payable as follows: Principal and Basic Interest shall be paid in
thirty-six (36) equal and successive monthly payments, in advance, beginning on
the Borrowing Date and continuing on the first Business Day of each month
thereafter; provided, that the first and last such amortization installment
payments shall be paid in advance on the Borrowing Date. If the Borrowing Date
is not the first day of a month, then the 36-month amortization period shall
commence on the first day of the first full month following the Borrowing Date,
and interest only shall accrue and be payable for the period from the Borrowing
Date to the first Business Day of the next month. Borrower shall pay to
Lender, in advance, on the Borrowing Date a payment of Basic Interest on the
amount of any Loan that is not made on the first day of the month for interest
that will accrue on such Loan from the Borrowing Date through the last day of
the same month. The Terminal Payment with respect to a Loan shall be paid on
the applicable Maturity Date.
2.5 PROCEDURES FOR BORROWING.
(a) Borrower shall give Lender, at least five (5)
Business Days' prior to a proposed Borrowing Date, written notice of
any request for a Loan hereunder (a "Borrowing Request"). Each
Borrowing Request shall be in substantially the form of Exhibit "B"
hereto, shall be executed by the chief financial officer of Borrower,
and shall state whether the Loan requested is an Equipment Loan or a
Term Loan, and the amount of the proposed Loan, and (if the proposed
Loan is a Term Loan) shall certify the amount of the Borrowing Base
and that the aggregate principal amount of all outstanding Term Loans
before and after giving effect to the proposed Term Loan is less than
the Borrowing Base. In the case of each proposed Equipment Loan, to
the best of Borrower's knowledge after due inquiry of its senior
officers, the Borrowing Request shall also certify that all equipment
to be financed thereby is,
7
11
or will upon acquisition be, owned by Borrower free and clear of all
Liens except in favor of Lender or as otherwise permitted hereunder.
(b) No later than 1:00 p.m. Pacific Standard Time
on the Borrowing Date, if Borrower has satisfied the conditions
precedent in Article 4, Lender shall make the Loan proceeds available
to Borrower in immediately available funds.
2.6 INTEREST. Basic Interest on the outstanding
principal balance of the each Loan shall accrue daily at the Designated Rate
from the Borrowing Date until the Maturity Date. On the Maturity Date (whether
at stated maturity, prepayment or acceleration) of a Loan, Borrower shall pay
all amounts due thereunder.
2.7 TERMINAL PAYMENT. Borrower shall pay in full the
Terminal Payment with respect to each Loan on or before the Maturity Date of
such Loan.
2.8 INTEREST RATE CALCULATION. Basic Interest, along
with charges and fees under this Agreement and any Loan Document, shall be
calculated for actual days elapsed on the basis of a 360-day year, which
results in higher interest, charge or fee payments than if a 365-day year were
used. In no event shall Borrower be obligated to pay Lender any interest,
charges or fees at a rate in excess of the highest rate permitted by applicable
law from time to time in effect.
2.9 DEFAULT INTEREST. Any unpaid payments of principal
or interest with respect to any Loan shall bear interest from their respective
maturities, whether scheduled or accelerated, at the Designated Rate for such
Loan plus five percent (5.00%) per annum, until paid in full, whether before or
after judgment (the "Default Rate"). Unpaid Terminal Payments shall also bear
interest at the Default Rate. Borrower shall pay such interest on demand.
2.10 PREPAYMENT OF LOANS. Borrower may prepay any Term or
Equipment Loan, in whole but not in part at any time upon at least 30 days'
prior written notice to Lender. Borrower shall prepay one or more Term Loans,
in whole or in part, from time to time as necessary to the extent of the amount
by which the aggregate outstanding principal balance of all Term Loans exceeds
at any time the Borrowing Base. Notwithstanding the provisions of Article 6,
Borrower may (x) sell, transfer, lease or otherwise dispose of all or
substantially all of Borrower's assets or (y) enter into a merger in which
Borrower will not be the surviving corporation if, immediately prior to the
consummation of such transaction Borrower prepays all Loans then outstanding.
Any prepayment, including any prepayment pursuant to this Section 2.10, whether
voluntary or involuntary as a result of acceleration or otherwise, must be
accompanied by payment of: (i) accrued Basic Interest to the date of such
prepayment; and (ii) the Terminal Payment on the Loan so prepaid.
8
12
2.11 LENDER'S RECORDS. Principal, Basic Interest,
Terminal Payments and all other sums owed under any Loan Document shall be
evidenced by entries in records maintained by Lender for such purpose. Each
payment on and any other credits with respect to principal, Basic Interest,
Terminal Payments and all other sums outstanding under any Loan Document shall
be evidenced by entries in such records. Absent manifest error, Lender's
records shall be conclusive evidence thereof.
2.12 SECURITY. As security for all Obligations to Lender,
Borrower shall grant to Lender perfected security interests of first priority
in all of the Collateral defined in the Security Agreement, subject only to
Permitted Liens and as required under Article 4. If upon payment in full of
all Obligations in respect of all Equipment Loans there remain outstanding
Obligations in respect of the Term Loans, and if no Event of Default then
exists, then Lender shall release its security interests in all Collateral
securing any Equipment Loan Indebtedness. If upon payment in full of all
Obligations in respect of the Term Loans there remain outstanding Obligations
in respect of the Equipment Loans, and if no Event of Default then exists, then
Lender shall release its security interests in all Collateral except Equipment
and Proceeds and Records relating solely to Equipment.
2.13 ISSUANCE OF WARRANT TO LENDER. As additional
consideration for the making of the Loans under this Agreement, upon the making
of the first Loan and as a condition thereto, Borrower shall issue to Lender a
warrant to purchase 186,652 shares of common stock of Borrower at an initial
exercise price of $4.42 per share ("Warrant Shares"). The warrant issued under
this Agreement shall be in substantially the form attached hereto as Exhibit
"D"; shall be transferable by Lender, subject to compliance with applicable
securities laws; shall expire not earlier than December 31, 2003; and shall
include piggy-back registration rights, and "net issuance" provisions
reasonably satisfactory to Lender and its counsel.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that as of the Closing Date
and each Borrowing Date:
3.1 DUE ORGANIZATION. Borrower is a corporation duly
organized and validly existing in good standing under the laws of California,
and is duly qualified to conduct business and is in good standing in each other
jurisdiction in which its business is conducted or its properties are located,
except where the failure to be so qualified would not reasonably be expected to
have a Material Adverse Effect.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The
execution, delivery and performance of all Loan Documents executed by Borrower
are within Borrower's powers, have been duly authorized, and are not in
conflict with Borrower's certificate of incorporation or by-laws, or the terms
of any charter or other organizational document of Borrower, as amended from
time to
9
13
time; and all such Loan Documents constitute valid and binding obligations of
Borrower, enforceable in accordance with their terms (except as may be limited
by bankruptcy, insolvency and similar laws affecting the enforcement of
creditors' rights in general, and subject to general principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. Borrower has
complied with all licensing, permit and fictitious name requirements necessary
to lawfully conduct the business in which it is engaged, and to any sales,
leases or the furnishing of services by Borrower, including without limitation
those requiring consumer or other disclosures, the noncompliance with which
would have a Material Adverse Effect.
3.4 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES.
(a) Borrower owns or is licensed or
otherwise has the right to use all of the patents, trademarks, service
marks, trade names, copyrights, contractual franchises, authorizations
and other similar rights that are reasonably necessary for the
operation of its business, without, to the best of Borrower's
knowledge, conflict with the rights of any other Person.
(b) To Borrower's knowledge, no slogan
or other advertising device, product, process, method, substance, part
or other material now employed, or now contemplated to be employed, by
Borrower infringes upon any rights held by any other Person.
(c) No claim or litigation regarding any of the
foregoing is pending or, to Borrower's knowledge, threatened, and to
Borrower's knowledge no patent, invention, device, application,
principle or any statute, law, rule, regulation, standard or code is
pending or proposed which, in either case, would reasonably be
expected to have a Material Adverse Effect.
3.5 NO CONFLICT. The execution, delivery, and
performance by Borrower of all Loan Documents are not in conflict with any law,
rule, regulation, order or directive, or any indenture, agreement, or
undertaking to which Borrower is a party or by which Borrower may be bound or
affected.
3.6 NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no
litigation, tax claim, proceeding or dispute pending, or, to the knowledge of
Borrower, threatened against or affecting Borrower or its property.
3.7 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's
financial statements which have been delivered to Lender fairly and accurately
reflect Borrower's financial condition as of September 30, 1997; and, since
that date there has been no Material Adverse Change.
3.8 NO SUBSIDIARIES. Borrower is not an Affiliate of or
a majority owner of or in a control relationship with any other business
entity, except that Borrower owns all of the outstanding capital stock of: (i)
XXX
00
00
Productions, Inc., a New York corporation (the name of which Borrower intends
to change to "Digital Generation Systems of New York"); and (ii) MediaTech
Inc., a Delaware corporation.
3.9 ENVIRONMENTAL MATTERS. Borrower is in compliance
with all applicable Environmental Laws, except to the extent a failure to be in
such compliance would not reasonably be expected to have a Material Adverse
Effect on Borrower's operations, properties or financial condition.
3.10 NO EVENT OF DEFAULT. No Default or Event of Default
has occurred and is continuing.
3.11 FULL DISCLOSURE. None of the representations or
warranties made by Borrower in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of Borrower in connection with the Loan Documents (including
disclosure materials delivered by or on behalf of Borrower to Lender prior to
the Closing Date), contains any untrue statement of a material fact or omits
any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO INITIAL LOAN. The obligation of Lender
to make its first Loan hereunder is, in addition to the conditions precedent
specified in Section 4.2, subject to the fulfillment of the following
conditions and to the receipt by Lender of the documents described below, duly
executed and in form and substance satisfactory to Lender and its counsel:
(a) RESOLUTIONS. A certified copy of
the resolutions of the Board of Directors of Borrower authorizing the
execution, delivery and performance by Borrower of the Loan Documents.
(b) INCUMBENCY AND SIGNATURES. A
certificate of the secretary of Borrower certifying the names of the
officer or officers of Borrower authorized to sign the Loan Documents,
together with a sample of the true signature of each such officer.
(c) OPINION OF COUNSEL. The opinion of
Wilson, Sonsini, Xxxxxxxx & Xxxxxx, counsel for Borrower, together
with any opinions, certificates and other matters on which such
opinion relies.
(d) ARTICLES AND BY-LAWS. Certified
copies of the Articles of Incorporation and bylaws of Borrower, as
amended through the Closing Date.
11
15
(e) THE AGREEMENT. A duly executed
counterpart of this Agreement with all applicable schedules completed
and attached thereto, disclosing such information as is acceptable to
Lender.
(f) SECURITY AGREEMENT; FINANCING
STATEMENTS. A counterpart of the Security Agreement executed by
Borrower, substantially in the form of Exhibit "C", together with
filing copies (or other evidence of filing satisfactory to Lender and
its counsel) of such Uniform Commercial Code financing statements,
collateral assignments and termination statements, with respect to the
Collateral (as defined in such Security Agreement) as Lender shall
request.
(g) LIEN SEARCHES. Uniform Commercial
Code lien, judgment, bankruptcy and tax lien searches of Borrower from
the California Secretary of State, and such other jurisdictions as
Lender may reasonably request, all as of a date reasonably
satisfactory to Lender and its counsel.
(h) GOOD STANDING CERTIFICATE. A
Certificate of Good Standing as of a date acceptable to Lender with
respect to Borrower from the California Secretary of State.
(i) WARRANT. The warrant issued by
Borrower to Lender exercisable for 186,652 Warrant Shares, as
described in Section 2.13 hereof.
(j) INTERCREDITOR AGREEMENT. Lender and
Venture Lending & Leasing, Inc., shall have entered into an
intercreditor agreement setting forth the relative priorities of their
respective Liens in the Collateral on terms satisfactory to Lender.
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to
make its initial Loan and each subsequent Loan is subject to the following
further conditions precedent that:
(a) NO DEFAULT. No Default or Event of
Default has occurred and is continuing or will result from the making
of any such Loan, and the representations and warranties of Borrower
contained in Article 3 of this Agreement are true and correct as of
the Borrowing Date of such Loan.
(b) NO ADVERSE MATERIAL CHANGE. No
Material Adverse Change shall have occurred since the date of the most
recent financial statements submitted to Lender.
(c) NOTE. Borrower shall have delivered an
executed Note evidencing such Loan, in form and substance satisfactory
to Lender.
(d) BORROWING REQUEST. Borrower shall have
delivered to Lender a Borrowing Request for such Loan.
12
16
(e) VCOC LIMITATION. The making of the
Loan will not result in a violation of the condition applicable to
Lender described in Section 2.3(b).
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of
all obligations to Lender, Borrower will:
5.1 NOTICE TO LENDER. Promptly give written notice to
Lender of:
(a) Any litigation or administrative or
regulatory proceeding affecting Borrower where the granting of the
relief requested could reasonably be expected to have a Material
Adverse Effect.
(b) Any dispute which may exist between
Borrower or any governmental or regulatory authority which could
reasonably be expected to have a Material Adverse Effect.
(c) The occurrence of any Default or
Event of Default.
(d) Any change in the location of any of
Borrower's places of business at least thirty (30) days in advance of
such change, or of the establishment of any new, or the discontinuance
of any existing, place of business.
(e) Any other matter which has resulted
or might reasonably result in a Material Adverse Change.
5.2 FINANCIAL STATEMENTS. Deliver to the Lender or cause
to be delivered to Lender, in form and detail satisfactory to Lender the
following financial information, which Borrower warrants shall be accurate and
complete in all material respects:
(a) MONTHLY FINANCIAL STATEMENTS. As
soon as available but no later than forty-five (45) days after the end
of each month, Borrower's balance sheet as of the end of such period,
and Borrower's income statement for such period and for that portion
of Borrower's financial reporting year ending with such period,
prepared and attested by a responsible financial officer of Borrower
as being complete and correct and fairly presenting Borrower's
financial condition and the results of Borrower's operations;
provided, however, that, so long as Borrower is a Reporting Company,
Borrower may satisfy its obligations under this Section 5.2(a) by
delivering to Lender promptly after filing with the SEC, copies of
Borrower's Quarterly Reports on Form 10-Q (without exhibits) and any
amendments thereto.
13
17
(b) YEAR-END FINANCIAL STATEMENTS. As
soon as available but no later than one hundred twenty (120) days
after and as of the end of each financial reporting year, a complete
copy of Borrower's audit report, which shall include balance sheet,
income statement, statement of changes in equity and statement of cash
flows for such year, prepared and certified by an independent
certified public accountant selected by Borrower and satisfactory to
Lender (the "Accountant"). The Accountant's certification shall not
be qualified or limited due to a restricted or limited examination by
the Accountant of any material portion of Borrower's records or
otherwise. Notwithstanding the foregoing, so long as Borrower is a
Reporting Company, Borrower may satisfy its obligations under this
Section 5.2(b) by delivering to Lender promptly after filing with the
SEC copies of Borrower's Annual Reports on Form 10-K (without
exhibits) and any amendments thereto.
(c) COMPLIANCE CERTIFICATES.
Simultaneously with the delivery of each set of financial statements
referred to in paragraphs (a) and (b) above, a certificate of the
chief financial officer of Borrower as to the amount of the Borrowing
Base as of the date of such financial statement (in the form of
Exhibit "E" attached hereto), and stating whether any Default or Event
of Default exists on the date of such certificate, and if so, setting
forth the details thereof and the action which Borrower is taking or
proposes to take with respect thereto.
(d) OTHER INFORMATION. Such other
statements, lists of property and accounts, budgets, forecasts,
reports, or other information as Lender may reasonably from time to
time request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Solely to permit
Lender, as a "venture capital operating company" to participate in, and
influence the conduct of management of Borrower through the exercise of
"management rights," as such terms are defined in 29 C.F.R. Section
2510.3-101(d) Borrower will:
(a) Permit Lender to make available to
Borrower, at no cost to Borrower, "significant managerial assistance",
as defined in Section 2(a)(47) of the Investment Company Act of 1940,
as amended, either in the form of: (i) consulting arrangements with
Lender or any of its officers, directors, employees or affiliates,
(ii) Borrower's allowing Lender to provide recommendations of
prospective candidates for election to Borrower's Board of Directors,
or (iii) Lender, at Borrower's request, seeking the services of
third-party consultants to aid Borrower with respect to its management
and operations;
(b) Permit Lender to make available
consulting and advisory services to officers of Borrower regarding
Borrower's equipment acquisition and financing plans, and such other
matters affecting the business, financial condition and prospects of
Borrower as Lender shall reasonably deem relevant; and
14
18
(c) If Lender reasonably believes that
financial or other developments affecting Borrower have impaired or
are likely to impair Borrower's ability to perform its obligations
under this Agreement, permit Lender reasonable access to Borrower's
management and/or Board of Directors and opportunity to present
Lender's views with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower's
existence, present form of business, and all rights and privileges necessary or
desirable in the normal course of its business; and keep all Borrower's
property in good working order and condition, ordinary wear and tear excepted.
5.5 INSURANCE. Obtain and keep in force insurance in
such amounts and types as is usual in the business carried on by Borrower with
an insurance carrier having a policyholder rating of not less than "A" and
financial category rating of Class VII in "Best's Insurance Guide," unless
otherwise approved by Lender. Such insurance policies must be in form and
substance satisfactory to Lender, and shall list Lender as an additional
insured or loss payee, as applicable, on endorsement(s) in form reasonably
acceptable to Lender. Borrower shall furnish to Lender such endorsements, and
upon Lender's request, copies of any or all such policies.
5.6 ACCOUNTING RECORDS. Maintain adequate books,
accounts and records, and prepare all financial statements delivered to Lender
pursuant to Section 5.2 in accordance with GAAP, and in compliance with the
regulations of any governmental or regulatory authority having jurisdiction
over Borrower or Borrower's business; and permit employees or agents of Lender
at such reasonable times as Lender may request, at Borrower's expense, to
inspect Borrower's properties, and to examine and make copies and memoranda of
Borrower's books, accounts and records.
5.7 COMPLIANCE WITH LAWS. Comply with all laws
(including Environmental Laws), rules, regulations applicable to, and all
orders and directives of any governmental or regulatory authority having
jurisdiction over, Borrower or Borrower's business, and with all material
agreements to which Borrower is a party, except where the failure to so comply
would not have a Material Adverse Effect.
5.8 TAXES AND OTHER LIABILITIES. Except as may be
contested in good faith by the appropriate procedures and for which Borrower
shall maintain appropriate reserves under GAAP: (i) pay all Borrower's
obligations when due; (ii) pay all material taxes and other governmental or
regulatory assessments before delinquency or before any penalty attaches
thereto; and (iii) timely file all required tax returns.
5.9 USE OF PROCEEDS. Use the proceeds of Loans only as
set forth in Article 2 of this Agreement; and not directly or indirectly to
purchase or carry any margin stock, as defined from time to time by the Board
of Governors of the Federal Reserve System in Federal Regulation U.
15
19
5.10 LOCATIONS OF COLLATERAL. Not later than June 15 and
December 15 of each year during the term of this Agreement, Borrower shall
deliver to Lender a list of the location of each item of Equipment (as defined
in the Security Agreement) as of June 1 and December 1, respectively, of such
year.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of
all obligations to Lender, Borrower will not without Lender's approval (i)
sell, transfer, lease or otherwise dispose of all or substantially all of
Borrower's assets, or (ii) enter into any merger unless Borrower is the
surviving corporation thereof, or (iii) liquidate or dissolve.
ARTICLE 7 - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. Upon the occurrence and during
the continuation of any Default, the obligation of Lender to make any
additional Loan shall be suspended. The occurrence of any of the following
shall terminate any obligation of Lender to make any additional Loan; and
shall, at the option of Lender (1) make all sums of Basic Interest, principal,
Terminal Payments and any other amounts owing under any Loan Documents
immediately due and payable without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or any other notices
or demands, and (2) give Lender the right to exercise any other right or remedy
provided by contract or applicable law:
(a) Borrower shall fail to make any
payment required under this Agreement, or to pay any fees or other
charges when due under any Loan Document, and such failure continues
for five (5) Business Days or more after the same first becomes due;
or an Event of Default as defined in any other Loan Document shall
have occurred.
(b) Any representation, warranty,
financial statement, certificate or other document provided by
Borrower under any Loan Document shall prove to have been false or
misleading in any material respect when made or deemed made herein.
(c) Borrower shall fail to pay its debts
generally as they become due or shall commence any Insolvency
Proceeding with respect to itself; an involuntary Insolvency
Proceeding shall be filed against Borrower, or a custodian, receiver,
trustee, assignee for the benefit of creditors, or other similar
official, shall be appointed to take possession, custody or control of
the properties of Borrower, and such involuntary Insolvency
Proceeding, petition or appointment is acquiesced to by Borrower or is
not dismissed within ninety (90) days; or the dissolution or
termination of the business of Borrower.
16
20
(d) Borrower shall be in default beyond
any applicable period of grace or cure under any other agreement
involving the borrowing of money, the purchase of property, the
advance of credit or any other monetary liability of any kind to
Lender or to any Person which results in the acceleration of payment
of such obligation in an amount in excess of Five Hundred Thousand
Dollars ($500,000).
(e) Any governmental or regulatory
authority shall take any judicial or administrative action, or any
defined benefit pension plan maintained by Borrower shall have any
unfunded liabilities, any of which, in the reasonable judgment of
Lender, could reasonably be expected to have a Material Adverse
Effect.
(f) Any judgment in excess of Five
Hundred Thousand Dollars ($500,000) shall be entered against Borrower
which remains unsatisfied, unvacated or unstayed pending appeal for
thirty (30) or more days after entry thereof.
(g) Borrower shall fail to perform or
observe any covenant contained in Article 6 of this Agreement.
(h) Borrower shall fail to perform or observe
any covenant contained in this Agreement or any other Loan Document
(other than a covenant which is dealt with specifically elsewhere in
this Article 7) and the breach of such covenant is not cured within
thirty (30) days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such breach
first becomes known to any officer of Borrower; provided, however that
if such breach is not capable of being cured within such thirty (30)
day period and Borrower timely notifies Lender of such fact and
Borrower diligently pursues such cure, then the cure period shall be
extended to the date requested in Borrower's notice but in no event
more than ninety (90) days from the initial breach; provided, further,
that such additional ninety (90) day opportunity to cure shall not
apply in the case of any failure to perform or observe any covenant
which has been the subject of a prior failure within the preceding one
hundred eighty (180) days or which is a willful and knowing breach by
Borrower.
ARTICLE 8 - GENERAL PROVISIONS
8.1 NOTICES. Any notice given by any party under any
Loan Document shall be in writing and personally delivered, sent by overnight
courier, or United States mail, postage prepaid, or sent by facsimile, to be
promptly confirmed in writing, or other authenticated message, charges prepaid,
to the other party's or parties' addresses shown on the signature pages hereto.
Each party may change the address or facsimile number to which notices,
requests and other communications are to be sent by giving written notice of
such change to each other party. Notice given by hand delivery shall be deemed
received on the date delivered; if sent by overnight courier,
17
21
on the next business day after delivery to the courier service; if by first
class mail, on the third business day after deposit in the U.S. Mail; and if
by facsimile, on the date of transmission.
8.2 BINDING EFFECT. The Loan Documents shall be binding
upon and inure to the benefit of Borrower and Lender and their respective
successors and assigns; provided, however, that Borrower may not assign or
transfer Borrower's rights or obligations under any Loan Document without
Lender's prior written consent. Lender reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, Lender's rights and obligations under the Loan Documents. In
connection with any of the foregoing, Lender may disclose all documents and
information which Lender now or hereafter may have relating to the Loans,
Borrower, or its business; provided that any person who receives such
information shall have agreed in writing in advance to maintain the
confidentiality of such information on terms reasonably acceptable to Borrower.
8.3 NO WAIVER. Any waiver, consent or approval by Lender
of any Event of Default or breach of any provision, condition, or covenant of
any Loan Document must be in writing and shall be effective only to the extent
set forth in writing. No waiver of any breach or default shall be deemed a
waiver of any later breach or default of the same or any other provision of any
Loan Document. No failure or delay on the part of Lender in exercising any
power, right, or privilege under any Loan Document shall operate as a waiver
thereof, and no single or partial exercise of any such power, right, or
privilege shall preclude any further exercise thereof or the exercise of any
other power, right or privilege. Lender has the right at its sole option to
continue to accept interest and/or principal payments due under the Loan
Documents after default, and such acceptance shall not constitute a waiver of
said default or an extension of the Maturity Date unless Lender agrees
otherwise in writing.
8.4 RIGHTS CUMULATIVE. All rights and remedies existing
under the Loan Documents are cumulative to, and not exclusive of, any other
rights or remedies available under contract or applicable law.
8.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan
Document executed by Borrower which is prohibited or unenforceable in any
jurisdiction, shall be so only as to such jurisdiction and only to the extent
of such prohibition or unenforceability, but all the remaining provisions of
any such Loan Document shall remain valid and enforceable.
8.6 ACCOUNTING TERMS. Except as otherwise provided in
this Agreement, accounting terms and financial covenants and information shall
be determined and prepared in accordance with GAAP.
8.7 INDEMNIFICATION; EXCULPATION. Borrower shall pay and
protect, defend and indemnify Lender and Lender's employees, officers,
directors, shareholders, affiliates, correspondents, agents and representatives
(other than Lender, collectively "Agents") against, and hold
18
22
Lender and each such Agent harmless from, all claims, actions, proceedings,
liabilities, damages, losses, expenses (including, without limitation,
reasonable attorneys' fees and costs) and other amounts incurred by Lender and
each such Agent, arising from (i) the matters contemplated by this Agreement or
any other Loan Documents or (ii) any contention that Borrower has failed to
comply with any law, rule, regulation, order or directive applicable to
Borrower's business; PROVIDED, HOWEVER, that this indemnification shall not
apply to any of the foregoing incurred solely as the result of Lender's or any
Agent's gross negligence or willful misconduct. This indemnification shall
survive the payment and satisfaction of all of Borrower's Obligations to
Lender.
8.8 REIMBURSEMENT. Borrower shall reimburse Lender its
actual out of pocket expenses and reasonable legal fees and costs in connection
with the preparation and negotiation of the Loan Documents; provided that such
expenses (other than the attorneys' fees and costs) shall not exceed Two
Thousand Dollars ($2,000). Borrower shall also reimburse Lender for all costs
and expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in (a) any arbitration, mediation,
judicial reference, legal action or otherwise in connection with the amendment,
interpretation and enforcement of the Loan Documents, including without
limitation during any workout, attempted workout, and/or in connection with the
rendering of legal advice as to Lender's rights, remedies and obligations under
the Loan Documents, (b) collecting any sum which becomes due Lender under any
Loan Document, (c) any proceeding for declaratory relief, any counterclaim to
any proceeding, or any appeal, or (d) the protection, preservation or
enforcement of any rights of Lender. For the purposes of this section,
attorneys' fees shall include, without limitation, fees incurred in connection
with the following: (1) contempt proceedings; (2) discovery; (3) any motion,
proceeding or other activity of any kind in connection with an Insolvency
Proceeding; (4) garnishment, levy, and debtor and third party examinations; and
(5) postjudgment motions and proceedings of any kind, including without
limitation any activity taken to collect or enforce any judgment. All of the
foregoing costs and expenses shall be payable upon demand by Lender, and if not
paid within forty-five (45) days of presentation of invoices shall bear
interest at the highest applicable Default Rate.
8.9 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts which, when taken together, shall
constitute but one agreement.
8.10 ENTIRE AGREEMENT. The Loan Documents are intended by
the parties as the final expression of their agreement and therefore contain
the entire agreement between the parties and supersede all prior understandings
or agreements concerning the subject matter hereof. This Agreement may be
amended only in a writing signed by Borrower and Lender.
19
23
8.11 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE
NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE
COURTS. EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. BORROWER AND LENDER
EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA
LAW.
8.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH
WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES
THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT
A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
20
24
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement as of the date set forth in the preamble.
ADDRESSES FOR NOTICES: DIGITAL GENERATION SYSTEMS, INC.
---------------------
Digital Generation Systems, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000 By: ___________________________________
Attn: Xxxxxx X. Xxxxxxxx Xxxxxx X. Xxxxxxxx,
Fax No. 000-000-0000 Chief Financial Officer
Venture Lending & Leasing II, Inc. VENTURE LENDING & LEASING II, INC.
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Attn: Xxxxxxxx X. Xxxxxxxxx,
President By: ______________________________
Fax No. 000-000-0000 Xxxxxxxx X. Xxxxxxxxx,
President
21
25
[Note No. X-XXX]
FORM OF PROMISSORY NOTE
$____________________ ____________________, 000___
Xxx Xxxx, Xxxxxxxxxx
The undersigned ("Borrower") promises to pay to the order of VENTURE
LENDING & LEASING II, INC., a Maryland corporation ("Lender") at its office at
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000, Xxx Xxxx, Xxxxxxxxxx 00000, or at such
other place as Lender may designate in writing, in lawful money of the United
States of America, the principal sum of _____________________________________
Dollars ($__________), with Basic Interest thereon from the date hereof until
maturity, whether scheduled or accelerated, at a fixed rate of eight and 50/100
percent (8.50%) per annum,, and on the Maturity Date a Terminal Payment as set
forth in the Loan Agreement defined below.
This Note is one of the Notes referred to in, and is entitled to all
the benefits of, a Loan Agreement dated as of December 1, 1997, between
Borrower and Lender (the "Loan Agreement"). Each capitalized term not
otherwise defined herein shall have the meaning set forth in the Loan
Agreement. The Loan Agreement contains provisions for the acceleration of the
maturity of this Note upon the happening of certain stated events.
Except as set forth below, principal and interest shall be payable in
36 equal monthly installments, as follows:
On the Borrowing Date, Borrower shall pay (i) Basic Interest, in
advance, on the outstanding principal balance of this Note at the Designated
Rate for the period from the Borrowing Date through [THE LAST DAY OF THE
SAME MONTH] ; (ii) a first (1st) amortization installment of principal and
Basic Interest in the amount of $_________________, in advance for the month of
[ FIRST FULL MONTH AFTER BORROWING DATE ]; and (iii) the thirty-sixth
amortization installment of principal and Basic Interest in the amount of
$_________________ in advance for the month of [36TH FULL MONTH AFTER THE
BORROWING DATE].
Commencing on the first Business Day of the second full month after
the Borrowing Date, and continuing on the first Business Day of each
consecutive month thereafter, principal and Basic Interest shall be payable, in
advance, in thirty-three (33) equal consecutive installments of
________________________________________ Dollars ($__________) each, with a
thirty-fourth (34th) installment equal to the entire unpaid principal balance
and accrued Basic Interest on _______________, 200_. The Terminal Payment
shall be payable on the first day of the 36th full month after the Borrowing
Date.
Any unpaid payments of principal, interest, or the Terminal Payment,
if any, on this Note shall bear interest from their respective maturities,
EXHIBIT A
TO LOAN AGREEMENT
26
whether scheduled or accelerated, at a rate per annum equal to the Default
Rate. Borrower shall pay such interest on demand.
Interest, charges and fees shall be calculated for actual days elapsed
on the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay any interest, charges or fees at a rate in excess of the
highest rate permitted by applicable law from time to time in effect.
After an Event of Default, the holder of this Note shall be entitled
to all costs of collection, including but not limited to reasonable attorney's
fees, incurred in connection with the holder's collection efforts, whether or
not suit on this Note is filed, and all such costs and expenses shall be
payable on demand.
This Note shall be governed by, and construed in accordance with, the
laws of the State of California.
DIGITAL GENERATION SYSTEMS, INC.
By:
____________________________________
Its:
____________________________________
2
27
FORM OF BORROWING REQUEST
________________, 1997
Venture Lending & Leasing II, Inc.
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Re: DIGITAL GENERATION SYSTEMS, INC.
Gentlemen:
Reference is made to the Loan Agreement dated as of December 1, 1997
(as it has been and may be amended from time to time, the "Loan Agreement", the
capitalized terms used herein as defined therein), between Venture Lending &
Leasing II, Inc. and Digital Generation Systems, Inc. (the "Company").
The undersigned is the Chief Financial Officer of the Company, and
hereby requests a Loan under the Loan Agreement, and in that connection
certifies as follows:
1. The amount of the proposed Loan is $__________________. The
proposed Loan is [a Term] [an Equipment] Loan. The Business Day of the
proposed Loan is _____________________, 199___.
2. As of this date, no Default or Event of Default has occurred
and is continuing, or will result from the making of the proposed Loan, and the
representations and warranties of the Company contained in Article 3 of the
Loan Agreement are true and correct.
3. No Material Adverse Change has occurred since the date of the
most recent financial statements submitted to you by the Company.
[4. After giving effect to the proposed Term Loan, the aggregate
principal balance of all Term Loans will not exceed the Borrowing Base.
Attached hereto is a current Borrowing Base Certificate pursuant to Section
2.5(a) of the Loan Agreement.]
The Company agrees to notify you promptly before the funding of the
Loan if any of the matters to which I have certified above shall not be true
and correct on the Borrowing Date.
Very truly yours,
__________________________
Chief Financial Officer
EXHIBIT B
to Loan Agreement
28
SECURITY AGREEMENT
This Agreement is made as of December 1, 1997 by Digital Generation
Systems, Inc., a California corporation ("Debtor"), in favor of Venture Lending
& Leasing II, Inc., a Maryland corporation ("Lender").
1 - DEFINITIONS
The following definitions shall be applicable to both the singular and plural
forms of the defined terms:
"ACCOUNT" means a right to payment for goods sold or leased by
Debtor or for services rendered by Debtor, which right is not evidenced by an
instrument or chattel paper, whether or not earned by performance.
"AGREEMENT" means this Security Agreement, as it may be amended
from time to time.
"COLLATERAL" means all Debtor's Accounts, Deposit Accounts,
Equipment, Fixtures, General Intangibles, Goods, Inventory, Rights to Payment,
and securities now owned or hereafter acquired, wherever located, and whether
held by Debtor or any third party, and all royalties, proceeds and products
thereof, including all insurance and condemnation proceeds ("Proceeds"), and all
monies now or at any time hereafter in the possession or under the control of
Lender or a bailee or affiliate of Lender, including any cash collateral in any
cash collateral or other account, and all Records. Notwithstanding the
foregoing, "Collateral" shall not include (i) any equipment, property or assets
of the Debtor leased from or financed by a third party to the extent the
contracts evidencing such lease or financing prohibit the granting by Debtor of
any other security interest therein, (ii) any rights of Debtor under any license
or contract if and to the extent that the granting of a security interest
therein in favor of Lender would violate the terms of such license or contract,
or (iii) any other rights or property the assignment of which for security
purposes is prohibited by law.
"DEPOSIT ACCOUNTS" means all Debtor's demand, time, savings,
passbook or similar accounts maintained with a financial institution or credit
union.
"EQUIPMENT" means all of Debtor's equipment now owned or
hereafter acquired, including but not limited to machinery, machine parts,
furniture, furnishings and all tangible personal property used in the business
of Debtor and all such property which is or is to become fixtures on real
property, and all improvements, replacements, accessions and additions thereto,
wherever located, and all proceeds thereof arising from the sale, lease, rental
or other use or disposition of any such property, including all rights to
payment with respect to insurance or condemnation, returned premiums, or any
cause of action relating to any of the foregoing.
"EVENT OF DEFAULT" means an event described in Article 6.
"FIXTURES" means all items of personal property of Debtor that
are so related to the real property upon which they are located that an interest
in them arises under real property law, and improvements, replacements, parts,
accessions and additions thereto, and substitutions therefor.
"GENERAL INTANGIBLES" means all personal property of Debtor,
other than Goods, not otherwise defined as Collateral, including without
limitation all interests or claims in insurance policies; literary property;
tradenames, tradename rights; Trademarks, Trademark rights, copyrights, Patents,
and all applications therefor; licenses, permits, franchises and like privileges
or rights issued by any governmental or regulatory authority; income tax
refunds; customer lists; claims and causes of action (whether in contract, tort
or otherwise), judgments and all guaranty claims, leasehold interests in
personal property, security interests or other security held by or guaranteed to
the Debtor to secure the payment by an account debtor of any of the Accounts.
EXHIBIT C
TO LOAN AGREEMENT
29
"GOODS" means all money and other personal property of Debtor,
other than General Intangibles, not otherwise defined as Collateral.
"INDEBTEDNESS" means all debts, obligations and liabilities of
Debtor to Lender currently existing or now or hereafter made, incurred or
created under, pursuant to or in connection with the Loan Agreement, whether
voluntary or involuntary and however arising or evidenced, whether direct or
acquired by Lender by assignment or succession, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, and
whether Debtor may be liable individually or jointly, or whether recovery upon
such debt may be or become barred by any statute of limitations or otherwise
unenforceable; and all renewals, extensions and modifications thereof; and all
attorneys' fees and costs incurred by Lender in connection with the collection
and enforcement thereof as provided for in any Loan Document.
"INVENTORY" means all Debtor's raw materials, advertising,
packaging and shipping materials, work in process, finished goods and goods held
for sale or lease or furnished under contracts of service, and all returned and
repossessed goods, and all goods covered by documents of title, including
warehouse receipts, bills of lading and all other documents of every type
covering all or any part of the Collateral.
"LIEN" means any voluntary or involuntary security interest,
mortgage, pledge, claim, charge, encumbrance, title retention agreement, or
third party interest covering all or any part of the property of Debtor or any
other Person.
"LOAN AGREEMENT" means that certain Loan Agreement between Debtor
and Lender of even date herewith, as amended from time to time.
"LOAN DOCUMENTS" means this Agreement, the Loan Agreement, any
evidence of Indebtedness, any guaranty, security or pledge agreement, or deed of
trust delivered in connection with any Indebtedness, and all other contracts,
instruments, addenda and documents executed in connection therewith.
"PATENT LICENSE" means any written agreement now or hereafter in
existence granting to Debtor any right to make, use, sell or practice any
invention on which a Patent is in existence, including, without limitation, the
agreements described in Schedule 1 to Exhibit A hereto.
"PATENTS" means all of the following: (i) all letters patent of
the United States or any other country, all registrations and recordings
thereof, and all applications for letters patent of the United States or any
other country, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state thereof or any other country or
any political subdivision thereof, and (ii) all reissues, divisions,
continuations, continuations-in-part, renewals or extensions thereof.
"PERMITTED LIENS" is defined in the Loan Agreement.
"PERSON" means any individual or entity.
"RECORDS" means all Debtor's computer programs, software,
hardware, source codes and data processing information, all written documents,
books, invoices, ledger sheets, financial information and statements, and all
other writings concerning Debtor's business.
"RIGHTS TO PAYMENT" means all Debtor's accounts, instruments,
contract rights, documents, chattel paper and all other rights to payment,
including, without limitation, the Accounts, all negotiable certificates of
deposit and all rights to payment under any Patent License, any Trademark
License, or any commercial or standby letter of credit.
2
30
"TRADEMARK LICENSE" means any written agreement now or hereafter
in existence granting to Debtor any right to use any Trademark.
"TRADEMARKS" means all of the following: (i) all trademarks,
trade names, corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or will appear,
designs and general intangibles of like nature, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
state thereof or any other country or any political subdivision thereof, and
(ii) all reissues, divisions, continuations, continuations-in-part, renewals or
extensions thereof.
"UNIFORM COMMERCIAL CODE" means the California Uniform Commercial
Code, as amended from time to time.
Terms not specifically defined in this Agreement have the meanings ascribed
thereto in the Loan Agreement and the Uniform Commercial Code.
2 - GRANT OF SECURITY INTEREST
To secure the timely payment of the Indebtedness and performance of all
obligations of Debtor to Lender, Debtor grants to Lender security interests in
the Collateral.
3 - REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants that, at all times during the term of this
Agreement:
3.1 GOVERNMENTAL ACTIONS. Debtor has obtained all consents and actions
of, and has performed all filings with, any governmental or regulatory authority
that are required to authorize the execution, delivery or performance of this
Agreement or the granting or perfecting of Lender's security interest in the
Collateral.
3.2 TITLE. Except for the security interests created by this Agreement,
and Permitted Liens, (i) Debtor is and will be the unconditional legal and
beneficial owner of the Collateral, and (ii) the Collateral is genuine and
subject to no Liens, rights or defenses of others. There exist no prior
assignments or encumbrances of record with the U.S. Patent and Trademark Office
affecting any Collateral in favor of any third party other than Lender.
3.3 RIGHTS TO PAYMENT. The names of the obligors, amount owing to
Debtor, due dates and all other information with respect to the Rights to
Payment are and will be correctly stated in all material respects in all Records
relating to the Rights to Payment. Debtor further represents and warrants, to
its knowledge, that each Person appearing to be obligated on a Right to Payment
has authority and capacity to contract and is bound as it appears to be.
3.4 CHIEF EXECUTIVE OFFICE. Debtor's chief executive office is located
at:
Address City County State Zip
------- ---- ------ ----- ---
000 Xxxxxxx Xxxxxx Xxx Xxxxxxxxx Xxx Xxxxxxxxx XX 00000
3
31
3.5 INVENTORY LOCATION. Other than as set forth in Section 3.4,
Inventory is located at:
Address City County State Zip
------- ---- ------ ----- ---
000 Xxxxxxx Xxxxxx Xxx Xxxxxxxxx Xxx Xxxxxxxxx XX 00000
00000 Xxxxxxx Xxxx. X. Xxxxxxxxx Xxx Xxxxxxx XX 00000 (MediaTech
West)
000 X. 00xx Xxxxxx Xxx Xxxx Xxx Xxxx XX 00000 (PDR)
000 X. 00xx Xxxxxx Xxx Xxxx Xxx Xxxx XX 00000 (MediaTech
East)
000 X. Xxxxxxx Xx. Xxxxxxx XX 00000 (MediaTech
Central)
000 Xxxx Xxxx Xx., Xxxxxxxxxx XX 00000
Suite 124
3.6 RECORDS LOCATION. Other than as set forth in Section 3.4, Records
are maintained at:
Address City County State Zip
------- ---- ------ ----- ---
000 X. 00xx Xxxxxx Xxx Xxxx Xxx Xxxx XX 00000 (PDR)
000 X. Xxxxxxx Xx. Xxxxxxx XX 00000 (MediaTech
Central)
3.7 EQUIPMENT OR FIXTURES LOCATION. Other than as set forth in Section
3.4, Equipment or Fixtures are located at:
Address City County State Zip
------- ---- ------ ----- ---
3.8 OTHER PLACES OF BUSINESS. In addition to the locations set forth in
Sections 3.4 through 3.7, Debtor maintains the following place(s) of business:
Address City County State Zip
------- ---- ------ ----- ---
3.9 BUSINESS NAMES. Debtor has conducted business in the following names
other than the name stated in the preamble to this Agreement:
MediaTech, Inc.
Starcom Television
PDR Productions, Inc.
4 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until payment of all the Indebtedness and
performance of all obligations to Lender, Debtor will:
4.1 DELIVERY OF CERTAIN ITEMS. Deliver to Lender promptly (a) upon
Lender's request, duplicate invoices with respect to each Account bearing such
language of assignment as Lender shall reasonably specify; (b) the originals of
all commercial and standby letters of credit, instruments, documents and chattel
paper constituting Collateral, endorsed and assigned as Lender shall reasonably
specify; (c) after an Event of Default, all Proceeds; (d) upon Lender's request,
returned property resulting from, or payment equal to any allowance or credit
on, Rights to Payment; (e) such specific acknowledgments, assignments or other
agreements as Lender may reasonably request relating to
4
32
the Collateral; and (f) such Records and other reports in such form and detail
and at such times as Lender may reasonably require relating to the Collateral,
including without limitation reports of acquisition, and disposition, agings,
and collection of any Collateral. If any of the Rights to Payment become
evidenced by an instrument, Debtor will notify Lender thereof and, upon request
by Lender promptly deliver such instrument to Lender appropriately endorsed to
the order of Lender as further security for the satisfaction in full of the
Indebtedness.
4.2 MAINTENANCE OF COLLATERAL; INSPECTION. Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good working
order and salable condition, ordinary wear and tear excepted, deal with the
Collateral in all ways as are considered good practice by owners of like
property, and use the Collateral lawfully and, to the extent applicable, only as
permitted by Debtor's insurance policies. Upon reasonable prior notice at
reasonable times during normal business hours, Debtor hereby authorizes Lender's
officers, employees, representatives and agents to inspect the Collateral and to
discuss the Collateral and the Records relating thereto with Debtor's officers
and employees, and, in the case of any Right to Payment, with any Person which
is or may be obligated thereon.
4.3 MAINTENANCE OF RECORDS; INSPECTION. Maintain, or cause to be
maintained, complete and accurate Records relating to the Collateral. Upon
reasonable prior notice at reasonable times during normal business hours,
Lender, its officers, employees, agents and representatives shall have the
right, from time to time, to examine the Records and to make copies or extracts
therefrom.
4.4 DEBTOR'S DUTY TO GIVE NOTICE. Give prompt notice to Lender of: (a)
except as permitted in Section 5.5, any material discount, credit, rebate or
other reduction in the amount owing on a material Right to Payment; (b) any
threatened or asserted dispute, setoff, claim, counterclaim or defense with
respect to a Right to Payment; (c) any material decrease in the value of any
Collateral and the amount of such decrease (other than depreciation calculated
in the ordinary course of business under applicable tax laws and regulations and
in accordance with generally accepted accounting principles); (d) any litigation
or administrative or regulatory proceeding which may have a material adverse
effect on Debtor or its business; (e) to the extent Debtor has actual knowledge
thereof, any change in the ownership of any property on which Debtor's chief
executive office is located; and (f) the occurrence of any Default or Event of
Default or of any other development, financial or otherwise, which might
materially adversely affect the Collateral or Debtor's ability to pay the
Indebtedness or perform its obligations to Lender.
4.5 FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to
Lender, and file or record at Debtor's expense, all financing statements,
notices and other documents (including, without limitation, any filings with the
United States Patent and Trademark Office) from time to time reasonably
requested by any Lender to maintain a first perfected security interest in the
Collateral in favor of Lender, all in form and substance satisfactory to Lender;
perform such other acts, and execute and deliver to Lender such additional
conveyances, assignments, agreements and instruments, as Lender may at any time
request in connection with the administration and enforcement of this Agreement
or Lender's rights, powers and remedies hereunder.
5 - NEGATIVE COVENANTS
During the term of this Agreement and until payment of all the Indebtedness and
performance of all obligations to Lender, Debtor will not:
5.1 LIENS. Create, incur, assume or permit to exist any Lien on any
Collateral, except Permitted Liens.
5.2 DOCUMENTS OF TITLE. Sign or authorize the signing of any financing
statement or other document naming Debtor as debtor or obligor, or acquiesce or
cooperate in the issuance of any xxxx of lading, warehouse receipt or other
document or instrument of title with respect to any Collateral, except those
negotiated to Lender, or those naming Lender as secured party.
5
33
5.3 DISPOSITION OF COLLATERAL. Sell, transfer, lease or otherwise
dispose of any Collateral except for fair consideration or in the ordinary
course of its business.
5.4 CHANGE IN LOCATION OR NAME. Fail to give written notice to Lender
within 30 days after the occurrence of any: (a) change in the location of any
Collateral or Records, its chief executive office, or a place of business other
than as specified in Article 3; or (b) change its name, mailing address,
location of Collateral, or its legal structure.
5.5 CERTAIN AGREEMENTS ON RIGHTS TO PAYMENT. Other than in the ordinary
course of business, make or arrange to make any material discount, credit,
rebate or other reduction in the original amount owing on a Right to Payment or
accept in satisfaction of a Right to Payment less than the original amount
thereof, except as disclosed to Lender in writing from time to time.
6 - EVENTS OF DEFAULT
6.1 EVENT OF DEFAULT. The occurrence of any "Event of Default" as
defined in the Loan Agreement, failure by Debtor to perform any of its duties or
obligations under this Agreement, or breach by Debtor of any of its
representations hereunder shall constitute an Event of Default hereunder.
6.2 ACCELERATION AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Lender shall be entitled to, at its option,
(a) declare all or any part of the Indebtedness immediately due and payable; (b)
exercise any or all of the rights and remedies available to a secured party
under the Uniform Commercial Code or any other applicable law; and (c) exercise
any or all of its rights and remedies provided for in this Agreement and in any
other Loan Document. The obligations of Debtor under this Agreement shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any Indebtedness is rescinded or must otherwise be returned by
Lender upon, on account of, or in connection with, the insolvency, bankruptcy or
reorganization of Debtor or otherwise, all as though such payment had not been
made.
6.3 SALE OF COLLATERAL. Upon the occurrence and during the continuance
of an Event of Default, Lender may sell all or any part of the Collateral, at
public or private sales, to itself, a wholesaler, retailer or investor, for
cash, upon credit or for future delivery, and at such price or prices as Lender
may deem commercially reasonable. To the extent permitted by law, Debtor hereby
specifically waives all rights of redemption and any rights of stay or appraisal
which it has or may have under any applicable law in effect from time to time.
Any such public or private sales shall be held at such times and at such
place(s) as Lender may determine. In case of the sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Lender until the selling price is paid by the purchaser, but Lender
shall not incur any liability in case of the failure of such purchaser to pay
for the Collateral and, in case of any such failure, such Collateral may be
resold. Lender may, instead of exercising its power of sale, proceed to enforce
its security interest in the Collateral by seeking a judgment or decree of a
court of competent jurisdiction. Without limiting the generality of the
foregoing, if an Event of Default is in effect,
(1) Subject to the rights of any third parties, Lender may
license, or sublicense, whether general, special or otherwise, and
whether on an exclusive or non-exclusive basis, any Patents or
Trademarks included in the Collateral throughout the world for such term
or terms, on such conditions and in such manner as Lender shall in its
sole discretion determine;
(2) Lender may (without assuming any obligations or
liability thereunder), at any time and from time to time, enforce (and
shall have the exclusive right to enforce) against any licensee or
sublicensee all rights and remedies of Debtor in, to and under any
Patent Licenses or Trademark Licenses and take or refrain from taking
any action under any thereof, and Debtor hereby releases Lender from,
and agrees to hold Lender free and harmless from and
6
34
against any claims arising out of, any lawful action so taken or omitted
to be taken with respect thereto other than claims arising out of
Lender's gross negligence or willful misconduct; and
(3) upon request by Lender, Debtor will execute and
deliver to Lender a power of attorney, in form and substance reasonably
satisfactory to Lender for the implementation of any lease, assignment,
license, sublicense, grant of option, sale or other disposition of a
Patent or Trademark. In the event of any such disposition pursuant to
this clause 3, Debtor shall supply its know-how and expertise relating
to the products or services made or rendered in connection with Patents,
the manufacture and sale of the products bearing Trademarks, and its
customer lists and other records relating to such Patents or Trademarks
and to the distribution of said products, to Lender.
6.4 DEBTOR'S OBLIGATIONS UPON DEFAULT. Upon the request of Lender after
the occurrence and during the continuance of an Event of Default, Debtor will:
(a) Assemble and make available to Lender the Collateral
at such place(s) as Lender shall reasonably designate, segregating all
Collateral so that each item is capable of identification; and
(b) Subject to the rights of any lessor, permit Lender,
by Lender's officers, employees, agents and representatives, to enter
any premises where any Collateral is located, to take possession of the
Collateral, to complete the processing, manufacture or repair of any
Collateral, and to remove the Collateral, or to conduct any public or
private sale of the Collateral, all without any liability of Lender for
rent or other compensation for the use of Debtor's premises.
7 - SPECIAL COLLATERAL PROVISIONS
7.1 COMPROMISE AND COLLECTION. Debtor and Lender recognize that setoffs,
counterclaims, defenses and other claims may be asserted by obligors with
respect to certain of the Rights to Payment; that certain of the Rights to
Payment may be or become uncollectible in whole or in part; and that the expense
and probability of success of litigating a disputed Right to Payment may exceed
the amount that reasonably may be expected to be recovered with respect to such
Right to Payment. Debtor hereby authorizes Lender, after and during the
continuance of an Event of Default, to compromise with the obligor, accept in
full payment of any Right to Payment such amount as Lender shall negotiate with
the obligor, or abandon any Right to Payment. Any such action by Lender shall be
considered commercially reasonable so long as Lender acts in good faith based on
information known to it at the time it takes any such action.
7.2 PERFORMANCE OF DEBTOR'S OBLIGATIONS. Without having any obligation
to do so, upon reasonable prior notice to Debtor, Lender may perform or pay any
obligation which Debtor has agreed to perform or pay under this Agreement,
including, without limitation, the payment or discharge of taxes or Liens levied
or placed on or threatened against the Collateral. In so performing or paying,
Lender shall determine the action to be taken and the amount necessary to
discharge such obligations. Debtor shall reimburse Lender on demand for any
amounts paid by Lender pursuant to this Section, which amounts shall constitute
Indebtedness secured by the Collateral and shall bear interest from the date of
demand at the rate applicable to overdue payments under the Loan Agreement.
7.3 POWER OF ATTORNEY. For the purpose of protecting and preserving the
Collateral and Lender's rights under this Agreement, Debtor hereby irrevocably
appoints Lender, with full power of substitution, as its attorney-in-fact with
full power and authority, after the occurrence and during the continuance of an
Event of Default, to do any act which Debtor is obligated to do hereunder; to
exercise such rights with respect to the Collateral as Debtor might exercise; to
use such Inventory, Equipment, Fixtures or other property as Debtor might use;
to enter Debtor's premises; to give notice of Lender's security interest in, and
to collect the Collateral; and to execute and file in Debtor's name any
financing statements, amendments and continuation statements necessary or
desirable to perfect or continue the perfection
7
35
of Lender's security interests in the Collateral. Debtor hereby ratifies all
that Lender shall lawfully do or cause to be done by virtue of this appointment.
7.4 AUTHORIZATION FOR LENDER TO TAKE CERTAIN ACTION. The power of
attorney created in Section 7.3 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Lender hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon Lender to
exercise such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and in no event
shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Debtor for any act or failure to act, except
for gross negligence or willful misconduct. After the occurrence and during the
continuance of an Event of Default, Lender may exercise this power of attorney
without notice to or assent of Debtor, in the name of Debtor, or in Lender's own
name, from time to time in Lender's sole discretion and at Debtor's expense. To
further carry out the terms of this Agreement, after the occurrence and during
the continuance of an Event of Default, Lender may:
(a) Execute any statements or documents or take
possession of, and endorse and collect and receive delivery or payment
of, any checks, drafts, notes, acceptances or other instruments and
documents constituting Collateral, or constituting the payment of
amounts due and to become due or any performance to be rendered with
respect to the Collateral.
(b) Sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts; drafts,
certificates and statements under any commercial or standby letter of
credit relating to Collateral; assignments, verifications and notices in
connection with Accounts; or any other documents relating to the
Collateral, including without limitation the Records.
(c) Use or operate Collateral or any other property of
Debtor for the purpose of preserving or liquidating Collateral.
(d) File any claim or take any other action or proceeding
in any court of law or equity or as otherwise deemed appropriate by
Lender for the purpose of collecting any and all monies due or securing
any performance to be rendered with respect to the Collateral.
(e) Commence, prosecute or defend any suits, actions or
proceedings or as otherwise deemed appropriate by Lender for the purpose
of protecting or collecting the Collateral. In furtherance of this
right, upon the occurrence and during the continuance of an Event of
Default, Lender may apply for the appointment of a receiver or similar
official to operate Debtor's business.
(f) Prepare, adjust, execute, deliver and receive payment
under insurance claims, and collect and receive payment of and endorse
any instrument in payment of loss or returned premiums or any other
insurance refund or return, and apply such amounts at Lender's sole
discretion, toward repayment of the Indebtedness or replacement of the
Collateral.
7.5 APPLICATION OF PROCEEDS. Any Proceeds and other monies or property
received by Lender pursuant to the terms of this Agreement or any Loan Document
may be applied by Lender first to the payment of expenses of collection,
including without limitation reasonable attorneys' fees, and then to the payment
of the Indebtedness in such order of application as Lender may elect.
7.6 DEFICIENCY. If the Proceeds of any disposition of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Indebtedness, plus all other sums required to be expended or
distributed by Lender, then Debtor shall be liable for any such deficiency.
7.7 LENDER TRANSFER. Upon the transfer of all or any part of the
Indebtedness, Lender may transfer all or part of the Collateral and shall be
fully
8
36
discharged thereafter from all liability and responsibility with respect to such
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Lender hereunder with respect to such Collateral so
transferred, but with respect to any Collateral not so transferred, Lender shall
retain all rights and powers hereby given.
7.8 LENDER'S DUTIES.
(a) Lender shall use reasonable care in the custody and
preservation of any Collateral in its possession. Without limitation on
other conduct which may be considered the exercise of reasonable care,
Lender shall be deemed to have exercised reasonable care in the custody
and preservation of such Collateral if such Collateral is accorded
treatment substantially equal to that which Lender accords its own
property, it being understood that Lender shall not have any
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, declining value, tenders or other
matters relative to any Collateral, regardless of whether Lender has or
is deemed to have knowledge of such matters; or taking any necessary
steps to preserve any rights against any Person with respect to any
Collateral. Under no circumstances shall Lender be responsible for any
injury or loss to the Collateral, or any part thereof, arising from any
cause beyond the reasonable control of Lender.
(b) Lender may at any time deliver the Collateral or any
part thereof to Debtor and the receipt of Debtor shall be a complete and
full acquittance for the Collateral so delivered, and Lender shall
thereafter be discharged from any liability or responsibility therefor.
(c) Neither Lender, nor any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or
representing Lender shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by
Debtor or any other party through the ordinary negligence of Lender, or
any of its directors, officers, employees, agents, attorneys or any
other person affiliated with or representing Lender.
8 - GENERAL PROVISIONS
8.1 NOTICES. Any notice given by any party under this Agreement shall be
given in the manner prescribed in the Loan Agreement.
8.2 BINDING EFFECT. This Agreement shall be binding upon Debtor, its
permitted successors, representatives and assigns, and shall inure to the
benefit of Lender and its successors and assigns.
8.3 RIGHTS CUMULATIVE. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
8.4 UNENFORCEABLE PROVISIONS. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be so only as to such
jurisdiction and only to the extent of such prohibition or unenforceability, but
all the remaining provisions of this Agreement shall remain valid and
enforceable.
8.5 GOVERNING LAW. Except as may be otherwise provided by the Uniform
Commercial Code, this Agreement shall be governed by and construed in accordance
with the laws of the State of California.
8.6 TERMINATION. Subject to Section 6.2 of this Agreement, upon the
payment in full of the Indebtedness and if Lender has no further obligations
under its Commitment, the security interest granted hereby shall terminate and
all rights to the Collateral shall revert to Debtor. Upon any such termination,
the Lender shall, at Debtor's expense, execute and deliver to Debtor such
documents as Debtor shall reasonably request to evidence such termination.
9
37
8.7 ENTIRE AGREEMENT. This Agreement is intended by Debtor and Lender as
the final expression of Debtor's obligations to Lender in connection with the
Collateral and supersedes all prior understandings or agreements concerning the
subject matter hereof. This Agreement may be amended only by a writing signed by
Debtor and accepted by Lender in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth in the preamble.
DIGITAL GENERATION SYSTEMS, INC.
By: ___________________________
Name: Xxxxxx X. Xxxxxxxx
Title: Chief Financial Officer
VENTURE LENDING & LEASING II, INC.
By: ___________________________
Name: Xxxxxxxx X. Xxxxxxxxx
Title: President
10
38
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE
186,652 SHARES OF COMMON STOCK OF
DIGITAL GENERATION SYSTEMS, INC.
(Void after December 31, 2003)
This certifies that VENTURE LENDING & LEASING II, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from DIGITAL GENERATION SYSTEMS, INC., a California corporation (the
"Company"),186,652 fully paid and nonassessable shares of the Company's Common
Stock ("Common Stock") for cash at a price of $4.42 per share (the "Stock
Purchase Price") at any time or from time to time up to and including 5:00 p.m.
(Pacific time) on December 31, 2003 (the "Expiration Date"), upon surrender to
the Company at its principal office at 000 Xxxxxxx Xxxxxx, Xxx Xxxxxxxxx, XX
00000 (or at such other location as the Company may advise Holder in writing) of
this Warrant properly endorsed with the Form of Subscription attached hereto
duly filled in and signed and upon payment in cash or by check of the aggregate
Stock Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
(a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at any
time or from time to time, on or before the Expiration Date for all or any
portion of the shares of Common Stock (but not for a fraction of a share) which
may be purchased hereunder for the Stock Purchase Price multiplied by the number
of shares to be purchased. The Company agrees that the shares of Common Stock
purchased under this Warrant shall be and are deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this
EXHIBIT D
TO LOAN AGREEMENT
39
Warrant shall have been surrendered and payment made for such shares. Subject to
the provisions of Section 2, certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. Except as provided in
clause (b) of this Section 1, in case of a purchase of less than all the shares
which may be purchased under this Warrant, the Company shall cancel this Warrant
and execute and deliver a new Warrant or Warrants of like tenor for the balance
of the shares purchasable under the Warrant surrendered upon such purchase to
the Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Common Stock as may be requested by the Holder
hereof and shall be registered in the name of such Holder or such other name as
shall be designated by such Holder, subject to the limitations contained in
Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment
of the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect,
at any time on or before the Expiration Date, to receive, through conversion of
this Warrant or any portion hereof into that number of shares of Common Stock
equal to the quotient of: (i) the difference between (A) the Per Share Price (as
hereinafter defined) of the Common Stock, less (B) the Stock Purchase Price then
in effect, multiplied by the number of shares of Common Stock the Holder would
otherwise have been entitled to purchase hereunder pursuant to clause (a) of
this Section 1 (or such lesser number of shares as the Holder may designate in
the case of a partial exercise of this Warrant); over (ii) the Per Share Price.
(c) For purposes of clause (b) of this Section 1, "Per Share
Price" means (i) if the Company's Common Stock is then listed or admitted to
trading on any national securities exchange or traded on any national market
system, the average of the closing bid and asked prices of the Company's Common
Stock as reported on such exchange or market system for the ten (10) consecutive
trading days prior to the date of the Holder's election to convert hereunder;
(ii) if this Warrant is being converted in conjunction with a public offering of
stock, the price to the public per share pursuant to the offering; or (iii) if
no shares of the Company's Common Stock are listed or admitted to trading on any
national securities exchange or traded on any national market system, the price
per share which the Company would obtain from a willing buyer for shares sold by
the Company from authorized but unissued shares as such price shall be agreed
upon by the Holder and the Company or, if agreement cannot be reached within ten
(10) business days of the Holder's election hereunder, as such price shall be
determined by a panel of three (3)
2
40
appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the
Holder and the third to be chosen by the first two (2) appraisers. If the
appraisers cannot reach agreement within 30 days of the Holder's election
hereunder, then each appraiser shall deliver its appraisal and the appraisal
which is neither the highest nor the lowest shall constitute the Per Share
Price. In the event either party fails to choose an appraiser within 30 days of
the Holder's election hereunder, then the appraisal of the sole appraiser shall
constitute the Per Share Price. Each party shall bear the cost of the appraiser
selected by such party and the cost of the third appraiser shall be borne
one-half by each party. In the event either party fails to choose an appraiser,
the cost of the sole appraiser shall be borne one-half by each party.
2. Limitation on Transfer.
(a) The Warrant and the Common Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
holder of this Warrant or the Common Stock issuable hereunder will cause any
proposed transferee of the Warrant or Common Stock to agree to take and hold
such securities subject to the provisions and upon the conditions specified in
this Section 2.
(b) Each certificate representing this Warrant
or the Common Stock shall (unless otherwise permitted by the provisions of this
Section 2 or unless such securities have been registered under the Securities
Act or sold under Rule 144) be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required under
applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and warrants to the Company (by
acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement under
the Securities Act was in effect with respect to such securities at the time of
issuance thereof) except pursuant to (i) an effective registration statement
under the Securities Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of
3
41
securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel
for the Company, that an exemption from such registration is available.
3. Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription rights evidenced
by this Warrant, a sufficient number of shares of authorized but unissued Common
Stock, or other securities and property, when and as required to provide for the
exercise of the rights represented by this Warrant. The Company will take all
such action as may be necessary to assure that such shares of Common Stock may
be issued as provided herein without material violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the Common Stock may be listed. The Company will not take any action which
would result in any adjustment of the Stock Purchase Price (as defined in
Section 4 hereof) (i) if the total number of shares of Common Stock issuable
after such action upon exercise of all outstanding warrants, together with all
shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon exercise of all options and upon the conversion of all convertible
securities then outstanding, would exceed the total number of shares of Common
Stock then authorized by the Company's Articles of Incorporation.
4. Adjustment of Stock Purchase Price Number of Shares. The Stock Purchase
Price and the number of shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of certain
events described in this Section 4. Upon each adjustment of the Stock Purchase
Price, the Holder of this Warrant shall thereafter be entitled to purchase, at
the Stock Purchase Price resulting from such adjustment, the number of shares
obtained by multiplying the Stock Purchase Price in effect immediately prior to
such adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment, and dividing the product thereof by the Stock Purchase
Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such
4
42
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 Dividends in Preferred Stock, Other Stock, Property,
Reclassification. If at any time or from time to time the holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) by way of dividend or other distribution
any shares of stock or other securities, whether or not such securities are at
any time directly or indirectly convertible into or exchangeable for Common
Stock, or any rights or options to subscribe for, purchase or otherwise acquire
any of the foregoing, or
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) additional stock or other securities or property
(including cash) by way of spinoff, split-up, reclassification, combination of
shares or similar corporate rearrangement, (other than shares of Common Stock
issued as a stock split, adjustments in respect of which shall be covered by the
terms of Section 4.1 above),
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefore, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) above) which such Holder would
hold on the date of such exercise had he been the holder of record of such
Common Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares and/or all other additional stock and other
securities and property.
4.3 Reorganization,Reclassification, Consolidation, Merger or
Sale. If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the holder hereof
shall thereafter have
5
43
the right to purchase and receive (in lieu of the shares of the Common Stock of
the Company immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby) such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby. In any such case, appropriate provision shall be
made with respect to the rights and interests of the Holder of this Warrant to
the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Stock Purchase Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be possible, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger or sale unless, prior to
the consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument, executed and mailed or delivered to the
registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
4.4 Intentionally Deleted.
4.5 Notice of Adjustment. Upon any adjustment of the Stock
Purchase Price, and/or any increase or decrease in the number of shares
purchasable upon the exercise of this Warrant the Company shall give written
notice thereof, by first class mail, postage prepaid, addressed to the
registered holder of this Warrant at the address of such holder as shown on the
books of the Company. The notice shall be signed by the Company's chief
financial officer and shall state the Stock Purchase Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4.6 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon any
of its stock;
(b) the Company shall declare any dividend upon its stock
payable in stock, or make any special dividend or other distribution to the
holders of its stock;
6
44
(c) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(f) the Company shall take or propose to take any other
action, notice of which is actually provided to holders of the Common Stock;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the holder of this Warrant at the address of
such holder as shown on the books of the Company, (i) at least 20 day's prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, or other action and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, or other action, at least 20 day's written notice of the date when
the same shall take place. Any notice given in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of stock shall be entitled
thereto. Any notice given in accordance with the foregoing clause (ii) shall
also specify the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action as the case may be. Notwithstanding
anything to the contrary, the Company's failure to give any notice required
under Section 4.5 or 4.6 shall not affect the validity of any Company action
requiring such notice to be given.
4.7 Certain Events. If in the reasonable judgment of the
Company's Board of Directors any change in the outstanding Common Stock of the
Company or any other event occurs as to which the other provisions of this
Section 4 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
of
7
45
the Company shall make an adjustment in the number and class of shares available
under the Warrant, the Stock Purchase Price and/or the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid. The adjustment shall be such as will
give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
5. Issue Tax. The issuance of certificates for shares of Common Stock upon
the exercise of the Warrant shall be made without charge to the Holder of the
Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Holder of the Warrant being exercised.
6. Closing of Books. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
7. No Voting or Dividend Rights; Limitation of Liability. Nothing contained
in this Warrant shall be construed as conferring upon the Holder hereof the
right to vote or to consent as a shareholder in respect of meetings of
shareholders for the election of directors of the Company or any other matters
or any rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised. No provisions hereof, in
the absence of affirmative action by the holder to purchase shares of Common
Stock, and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Stock Purchase
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by its creditors.
8. Amendment of Articles of Incorporation. Unless the Holder of this
Warrant consents thereto in writing, the Company shall not amend its Articles of
Incorporation prior to the exercise of this Warrant in any manner that would
adversely affect the Holder's rights hereunder.
9. Registration Rights. The Holder hereof shall be entitled, with respect
to the shares of Common Stock issued upon exercise hereof to all of the
registration rights set
8
46
forth in the Amendment and Restatement No. 4 to Rights Agreement dated as of
July 27, 1995 to the same extent and on the same terms and conditions as
possessed by the Holders thereunder pursuant to Section 1.3 ("Company
Registration") thereto. The Company shall take such action as may be reasonably
necessary to assure that the granting of such registration rights to the Holder
does not violate the provisions of such agreement or any of the Company's
charter documents or rights of prior grantees of registration rights.
10. Rights and Obligations Survive Exercise of Warrant.
The rights and obligations of the Company, of the Holder of this Warrant and of
the holder of shares of Common Stock issued upon exercise of this Warrant,
contained in Sections 8 and 9 shall survive the exercise of this Warrant.
11. Modification and Waiver. This Warrant and any
provision hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of the same
is sought.
12. Notices. Any notice, request or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be deemed to have been given (i) upon receipt if delivered
personally or by courier, (ii) upon confirmation of receipt if by telecopy, or
(iii) three business days after deposit in the U.S. mail, with postage prepaid
and certified or registered, to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor in the
first paragraph of this Warrant.
13. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assign of the holder hereof. The Company will, at the time of the exercise of
this Warrant, in whole or in part, upon request of the Holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
Holder hereof in respect of any rights (including, without limitation, any right
to registration of the shares of Common Stock) to which the holder hereof shall
continue to be entitled after such exercise in accordance with this Warrant;
provided, that the failure of the holder hereof to make any such request shall
not affect the continuing obligation of the Company to the Holder hereof in
respect of such rights.
14. Descriptive Headings and Governing Law. The
9
47
descriptive headings of the several sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. This
Warrant shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the internal laws of the State of California.
15. Lost Warrants or Stock Certificates. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. Fractional Shares. No fractional shares shall be
issued upon exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash equal
to such fraction multiplied by the then effective Stock Purchase Price.
17. Representations of Holder. With respect to this Warrant, Holder by
acceptance of this Warrant represents and warrants to, and covenants with, the
Company as follows:
17.1 Experience. It is experienced in evaluating and investing
in companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services, its
officers and its personnel; the officers of the Company have made available to
Holder any and all written information it has requested; the officers of the
Company have answered to Holder's satisfaction all inquiries made by it; in
making this investment it has relied upon information made available to it by
the Company; it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of investment in
the Company and it is able to bear the economic risk of that investment; and it
is an "accredited investor", as that term is defined in Section 501 of
Regulation D promulgated under the Securities Act of 1933, as amended.
17.2 Investment. It is acquiring the Warrant for investment for
its own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of Common
Stock issuable upon exercise thereof, have not been registered
10
48
under the Securities Act of 1933, as amended, nor qualified under applicable
state securities laws.
17.3 Rule 144. It acknowledges that the Warrant and the Common
Stock must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. It has
been advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act.
17.4 Access to Data. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
17.5 Neither Holder nor anyone acting on its behalf will take
any action hereafter that would cause the loss of the exemptions referred to in
Section 18.3.
18. Additional Representations and Covenants of the Company. The Company
hereby represents, warrants and agrees as follows:
18.1 Corporate Power. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and perform
its obligations hereunder.
18.2 Authorization. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken. This
Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms (except as may be limited by bankruptcy, insolvency
and similar laws affecting the enforcement of creditors' rights in general, and
subject to general principals of equity).
18.3 Offering. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance and
sale of the Warrant is, and the issuance of Common Stock upon exercise of the
Warrant will be exempt from the registration requirements of the Securities Act,
and are exempt from the qualification requirements of any applicable state
securities laws; and neither the Company nor anyone acting on its behalf will
take any action hereafter that would cause the loss of such exemptions.
18.4 Stock Issuance. Upon exercise of the Warrant, the Company
will use its reasonable commercial efforts to cause stock certificates
representing the shares of Common Stock purchased pursuant to the exercise to be
11
49
issued in the individual names of Holder, its nominees or assignees, as
appropriate at the time of such exercise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its officers, thereunto duly authorized this ___ day of
December, 1997.
DIGITAL GENERATION SYSTEMS, INC.
By:________________________________
Title:_____________________________
12
50
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:_____________________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, __________________________________ (_____) (1)
shares of Common Stock of __________________________________ and herewith makes
payment of _____________________________________ Dollars ($________) therefor,
and requests that the certificates for such shares be issued in the name of, and
delivered to, __________________________________________, whose address is
_____________________________.
The undersigned represents that it is acquiring such Common Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof (subject, however, to any requirement
of law that the disposition thereof shall at all times be within its control.
DATED:_________________________________
_______________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
_______________________________________
_______________________________________
(Address)
----------------
(1) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which
the Warrant is being exercised), in either case without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
13
51
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within
Warrant, hereby sells, assigns and transfers all of the rights of the
undersigned under the within Warrant, with respect to the number of shares of
Common Stock covered thereby set forth hereinbelow, unto:
Name of Assignee Address No. of Shares
Dated:_________________________________
_______________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
14
52
FORM OF BORROWING BASE CERTIFICATE
_________________, 199___
To: Venture Lending & Leasing II, Inc., as Lender under a certain Loan
Agreement dated as of December 1, 1997 (the "Loan Agreement").
Terms used in this certificate shall have the same meaning as ascribed
thereto in the Loan Agreement.
The undersigned officer of the Borrower certifies that the information
furnished herein as of __________________________, 199___ is true and
correct and that as of the date hereof no Event of Default, or Default
exists under the Loan Agreement.
A. Computation of Borrowing Base
I. 80% of Accounts (calculated
as per Agreement) $___________
II. Term Loan Facility
(a) Term Loan Commitment $3,500,000
(b) Aggregate Principal Amount
of Prior Term Loans $___________
(c) Unused Commitment [(a) less (b)] $___________
III. Additional Term Loan Availability:
Lesser of Borrowing Base (I) and
Unused Commitment (II(c)) $___________
[IV. Principal amount of Term Loan
requested] $___________
V. Aggregate Principal Balance of
Term Loans Outstanding $___________
DIGITAL GENERAL SYSTEMS, INC.
By: ________________________
Name: _______________________
Title: ______________________
EXHIBIT E
to Loan Agreemeent