LOAN AND SECURITY AGREEMENT (Working Capital Line of Credit)
Exhibit 10.1
LOAN AND SECURITY AGREEMENT
(Working Capital Line of Credit)
(Working Capital Line of Credit)
This LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of June 27, 2006, between SILICON
VALLEY BANK, a California chartered bank, with its principal place of business at 0000 Xxxxxx
Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 and with a loan production office located at 000 X. Xxxxxx,
Xxxxx 000, Xxxxxxx, Xxxxxxxx 00000 (FAX 000-000-0000) (“Bank”) and TELULAR CORPORATION, a Delaware
corporation, with offices at 000 X. Xxxxxxxx Xxxxxxx, Xxxxxx Xxxxx, Xxxxxxxx (FAX 000-000-0000)
(“Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay
Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following GAAP.
Calculations and determinations must be made following GAAP. The term “financial statements”
includes the notes and schedules. The terms “including” and “includes” always mean “including (or
includes) without limitation,” in this or any Loan Document. Capitalized terms in this Agreement
shall have the meanings set forth in Article 13. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meaning provided by the Code, to the extent such terms
are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the unpaid
principal amount of all Advances hereunder with all interest, fees and finance charges due thereon
as and when due in accordance with this Agreement.
2.1.1 Financing of Accounts.
(a) Availability. Subject to the terms of this Agreement, Borrower may request that
Bank finance specific Eligible Accounts. Bank may, in its good faith business discretion, finance
such Eligible Accounts by extending credit to Borrower in an amount equal to the result of the
Advance Rate multiplied by the face amount of the Eligible Account (the “Advance”). Bank may, in
its sole discretion, change the percentage of the Advance Rate for a particular Eligible Account on
a case by case basis. When Bank makes an Advance, the Eligible Account becomes a “Financed
Receivable.”
(b) Maximum Advances; Aggregate Cap. The aggregate face amount of all Financed
Receivables outstanding at any time may not exceed the Facility Amount. In addition, the aggregate
amount of Obligations under this Agreement, together with the aggregate amount of Purchased
Receivables (as such term is defined in the Purchase Agreement) outstanding under the Purchase
Agreement, shall not exceed Fifteen Million Dollars ($15,000,000.00). In the event such aggregate
amount of Obligations under this Agreement, together with the aggregate amount of Purchased
Receivables outstanding under the Purchase Agreement, exceeds Fifteen Million Dollars
($15,000,000.00) at any time, such excess shall be repaid immediately to Bank in good funds.
(c) Borrowing Procedure. Borrower will deliver an Invoice Transmittal for each
Eligible Account it offers. Bank may rely on information set forth in or provided with the Invoice
Transmittal.
(d) Credit Quality; Confirmations. Bank may, at its option, conduct a credit check of
the Account Debtor for each Account requested by Borrower for financing hereunder in order to
approve any such Account Debtor’s credit before agreeing to finance such Account. Bank may also
verify directly with the respective Account Debtors the validity, amount and other matters relating
to the Accounts (including confirmations of Borrower’s representations in Section 5.3) by means of
mail, telephone or otherwise, either in the name of Borrower or Bank from time to time in its sole
discretion.
(e) Accounts Notification/Collection. At any time after the occurrence of an Event of
Default, Bank may notify any Person owing Borrower money of Bank’s security interest in the funds
and verify and/or collect the amount of the Account.
(f) Maturity. This Agreement shall terminate and all Obligations outstanding
hereunder shall be immediately due and payable on the Maturity Date.
(g) Suspension of Advances. Borrower’s ability to request that Bank finance Eligible
Accounts hereunder will terminate if, in Bank’s sole discretion, there has been a material adverse
change in the general affairs, management, results of operation, condition (financial or otherwise)
or the prospect of repayment of the Obligations, or there has been any material adverse deviation
by Borrower from the most recent business plan of Borrower presented to and accepted by Bank prior
to the execution of this Agreement.
2.2 Collections, Finance Charges, Remittances and Fees. The Obligations shall be
subject to the following fees and Finance Charges. Unpaid fees and Finance Charges may, in Bank’s
discretion, accrue interest and fees as described in Section 9.2 hereof.
2.2.1 Collections. Collections will be credited to the Financed Receivable Balance for
such Financed Receivable, but if there is an Event of Default, Bank may apply Collections to the
Obligations in any order it chooses. If Bank receives a payment for both a Financed Receivable
and a non-Financed Receivable, the funds will first be applied to the Financed Receivable and, if
there is no Event of Default then existing, the excess will be remitted to Borrower, subject to
Section 2.2.7.
2.2.2 Loan Fees.
(a) A fully earned, non-refundable facility fee of Thirty Seven Thousand Five Hundred
Dollars ($37,500.00) is due upon execution of this Agreement (the “Facility Fee”).
(b) A fully earned, non-refundable anniversary fee of Twenty Five Thousand Dollars
($25,000.00) (the “Anniversary Fee”) shall be earned as of the date hereof, and shall be
payable on the earlier to occur of (i) the date that is one year from the Closing Date, or
(ii) the early termination of this Agreement by Borrower for any reason.
The Facility Fee and the Anniversary Fee are hereinafter collectively referred to as the “Loan
Fees”.
2.2.3 Finance Charges. In computing Finance Charges on the Obligations under this
Agreement, all Collections received by Bank shall be deemed applied by Bank on account of the
Obligations two (2) Business Days after receipt of the Collections. Borrower will pay a finance
charge (the “Finance Charge”) on each Financed Receivable which is equal to the Applicable Rate
divided by 360 multiplied by the number of days each such Financed Receivable is
outstanding multiplied by the outstanding Financed Receivable Balance. The Finance Charge
is payable when the Advance made based on such Financed Receivable is payable in accordance with
Section 2.3 hereof.
2.2.4 Collateral Handling Fee. Borrower will pay to Bank a collateral handling fee
equal to 0.125% per month of the Financed Receivable Balance for each Financed Receivable
outstanding based upon a 360 day year (the “Collateral Handling Fee”); provided, however, if
Borrower is unable to maintain an Adjusted Quick Ratio of at least 1.50 to 1.0 at any time during
any Reconciliation Period, then the Collateral Handling Fee will be equal to 0.375% per month of
the Financed Receivable Balance for each Financed Receivable outstanding effective as of such
Reconciliation Period and for each Reconciliation Period thereafter in which the Borrower’s
Adjusted Quick Ratio is less than 1.50 to 1.0 at any time. Notwithstanding the foregoing, no
Collateral Handling Fee will be applied with respect to a particular Reconciliation Period if,
during such Reconciliation Period, Borrower maintains an Adjusted Quick Ratio of at least 2.50 to
1.0 at all times. This fee is charged on a daily basis which is equal to the Collateral Handling
Fee divided by 30, multiplied by the number of days each such Financed Receivable is outstanding,
multiplied by the outstanding Financed Receivable Balance. The Collateral Handling Fee is payable
when the Advance made based on such Financed Receivable is payable in accordance with Section 2.3
hereof. In
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computing Collateral Handling Fees under this Agreement, all Collections received by Bank
shall be deemed applied by Bank on account of Obligations two (2) Business Days after receipt of
the Collections. After an Event of Default, the Collateral Handling Fee will increase an
additional 0.50% effective immediately upon such Event of Default.
2.2.5 Accounting. After each Reconciliation Period, Bank will provide an accounting
of the transactions for that Reconciliation Period, including the amount of all Financed
Receivables, all Collections, Adjustments, Finance Charges, Collateral Handling Fee and the Loan
Fees. If Borrower does not object to the accounting in writing within thirty (30) days it shall be
considered accurate. All Finance Charges and other interest and fees are calculated on the basis
of a 360 day year and actual days elapsed.
2.2.6 Deductions. Bank may deduct fees, Finance Charges, Advances which become due
pursuant to Section 2.3, and other amounts due pursuant to this Agreement from any Advances made or
Collections received by Bank.
2.2.7 Lockbox; Account Collection Services. Borrower shall direct each Account Debtor
(and each depository institution where proceeds of Accounts are on deposit) to remit payments with
respect to the Accounts to a lockbox account established with Bank or to wire transfer payments to
a cash collateral account that Bank controls (collectively, the “Lockbox”). It will be considered
an immediate Event of Default if the Lockbox is not set-up and operational on the Closing Date. If
for any reason at any time such Lockbox is not established, the proceeds of the Accounts shall be
paid by the Account Debtors to an address consented to by Bank. Upon receipt by Borrower of such
proceeds, Borrower shall immediately transfer and deliver same to Bank, along with a detailed cash
receipts journal. Provided no Event of Default exists or an event that with notice or lapse of
time will be an Event of Default, within three (3) days of receipt of such amounts by Bank, Bank
will turn over to Borrower the proceeds of the Accounts other than Collections with respect to
Financed Receivables and the amount of Collections in excess of the amounts for which Bank has made
an Advance to Borrower, less any amounts due to Bank, such as the Finance Charge, the Loan Fees,
payments due to Bank, other fees and expenses, or otherwise; provided, however, Bank may hold such
excess amount with respect to Financed Receivables as a reserve until the end of the applicable
Reconciliation Period if Bank, in its discretion, determines that other Financed Receivable(s) may
no longer qualify as an Eligible Account at any time prior to the end of the subject Reconciliation
Period. This Section does not impose any affirmative duty on Bank to perform any act other than as
specifically set forth herein. All Accounts and the proceeds thereof are Collateral and if an
Event of Default occurs, Bank may apply the proceeds of such Accounts to the Obligations.
2.3 Repayment of Obligations; Adjustments.
2.3.1 Repayment. Borrower will repay each Advance on the earliest of: (a) the date on
which payment is received of the Financed Receivable with respect to which the Advance was made,
(b) the date on which the Financed Receivable is no longer an Eligible Account, (c) the date on
which any Adjustment is asserted to the Financed Receivable (but only to the extent of the
Adjustment if the Financed Receivable remains otherwise an Eligible Account), (d) the date on which
there is a breach of any warranty or representation set forth in Section 5.3, or (e) the Maturity
Date (including any early termination). Each payment will also include all accrued Finance Charges
and Collateral Handling Fees with respect to such Advance and all other amounts then due and
payable hereunder.
2.3.2 Repayment on Event of Default. When there is an Event of Default, Borrower
will, if Bank demands (or, upon the occurrence of an Event of Default under Section 8.5,
immediately without notice or demand from Bank) repay all of the Advances. The demand may, at
Bank’s option, include the Advance for each Financed Receivable then outstanding and all accrued
Finance Charges, Collateral Handling Fee, attorneys’ and professional fees, court costs and
expenses, and any other Obligations.
2.3.3 Debit of Accounts. Bank may debit any of Borrower’s deposit accounts for
payments or any amounts Borrower owes Bank hereunder. Bank shall promptly notify Borrower when it
debits Borrower’s accounts. These debits shall not constitute a set-off.
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2.3.4 Adjustments. If at any time during the term of this Agreement any Account
Debtor asserts an Adjustment or if Borrower issues a credit memorandum or if any of the
representations, warranties or covenants set forth in Section 5.3 are no longer true in all
material respects, Borrower will promptly advise Bank.
2.4 Power of Attorney. Borrower irrevocably appoints Bank and its successors and
assigns as attorney-in-fact and authorizes Bank, to: (i) following the occurrence of an Event of
Default, sell, assign, transfer, pledge, compromise, or discharge all or any part of the Financed
Receivables; (ii) following the occurrence of an Event of Default, demand, collect, xxx, and give
releases to any Account Debtor for monies due and compromise, prosecute, or defend any action,
claim, case or proceeding about the Financed Receivables, including filing a claim or voting a
claim in any bankruptcy case in Bank’s or Borrower’s name, as Bank chooses; (iii) following the
occurrence of an Event of Default, prepare, file and sign Borrower’s name on any notice, claim,
assignment, demand, draft, or notice of or satisfaction of lien or mechanics’ lien or similar
document; (iv) following the occurrence of an Event of Default, notify all Account Debtors to pay
Bank directly; (v) regardless of whether there has been an Event of Default, receive, open, and
dispose of mail addressed to Borrower; (vi) regardless of whether there has been an Event of
Default, endorse Borrower’s name on checks or other instruments (to the extent necessary to pay
amounts owed pursuant to this Agreement); and (vii) regardless of whether there has been an Event
of Default, execute on Borrower’s behalf any instruments, documents, financing statements to
perfect Bank’s interests in the Financed Receivables and Collateral and do all acts and things
reasonably necessary or expedient to protect or preserve, Bank’s rights and remedies under this
Agreement, as directed by Bank.
3 CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. Bank’s agreement to make the initial
Advance is subject to the condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate, including, without limitation, subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) a certificate of the Secretary of Borrower with respect to articles, bylaws, incumbency
and resolutions authorizing the execution and delivery of this Agreement, the Loan Documents, and
all transactions related thereto, including the Warrant;
(b) an Intellectual Property Security Agreement;
(c) Perfection Certificate by Borrower;
(d) a legal opinion of Borrower’s counsel (authority/enforceability);
(e) Warrant to Purchase Stock;
(f) Antidilution Agreement (if necessary);
(g) Registration Rights Agreement (if necessary);
(h) Account Control Agreement/ Investment Account Control Agreement;
(i) insurance certificates;
(j) payment of the fees and Bank Expenses then due and payable;
(k) Certificate of Foreign Qualification (if applicable);
(l) Certificate of Good Standing/Legal Existence; and
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(m) such other documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate.
3.2 Conditions Precedent to all Advances. Bank’s agreement to make each Advance,
including the initial Advance, is subject to the following:
(a) receipt of the Invoice Transmittal;
(b) Bank shall have (at its option) conducted the confirmations and verifications as described
in Section 2.1.1(d); and
(c) each of the representations and warranties in Article 5 shall be true on the date of the
Invoice Transmittal and on the effective date of each Advance and no Event of Default shall have
occurred and be continuing, or result from the Advance. Each Advance is Borrower’s representation
and warranty on that date that the representations and warranties in Article 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment
and performance in full of all of the Obligations and the performance of each of Borrower’s duties
under the Loan Documents, a continuing security interest in, and pledges and assigns to Bank, the
Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds
and products thereof. Borrower warrants and represents that the security interest granted herein
shall be a first priority security interest in the Collateral.
Except as noted on the Perfection Certificate, Borrower is not a party to, nor is bound by,
any material license (other than over the counter software that is commercially available to the
public) or other material agreement with respect to which Borrower is the licensee that prohibits
or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property. Borrower shall provide written notice to Bank within
ten (10) days of entering or becoming bound by, any such license or agreement which is reasonably
likely to have a material impact on Borrower’s business or financial condition. Borrower shall
take such steps as Bank requests to obtain the consent of, authorization by, or waiver by, any
person whose consent or waiver is necessary for all such licenses or contract rights to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise be restricted or
prohibited by law or by the terms of any such license or agreement (such consent or authorization
may include a licensor’s agreement to a contingent assignment of the license to Bank if the Bank
determines that is necessary in its good faith judgment), whether now existing or entered into in
the future.
If the Agreement is terminated, Bank’s lien and security interest in the Collateral shall
continue until Borrower fully satisfies its Obligations. If Borrower shall at any time, acquire a
commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the
brief details thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and
substance satisfactory to Bank.
4.2 Authorization to File Financing Statements. Borrower hereby authorizes Bank to
file financing statements, without notice to Borrower, with all appropriate jurisdictions in order
to perfect or protect Bank’s interest or rights hereunder, which financing statements may indicate
the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or
lesser scope, or with greater detail, all in Bank’s discretion and may also include a notice that
any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to
violate the rights of Bank under the Code.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
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5.1 Due Organization and Authorization. Borrower and each Subsidiary is duly existing
and in good standing in its state of formation and qualified and licensed to do business in, and in
good standing in, any state in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not reasonably be expected to
cause a Material Adverse Change. Borrower represents and warrants to Bank that: (a) Borrower’s
exact legal name is that indicated on the Perfection Certificate and on the signature page hereof;
and (b) Borrower is an organization of the type, and is organized in the jurisdiction, set forth in
the Perfection Certificate; and (c) the Perfection Certificate accurately sets forth Borrower’s
organizational identification number or accurately states that Borrower has none; and (d) the
Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one,
its chief executive office as well as Borrower’s mailing address if different; and (e) all other
information set forth on the Perfection Certificate pertaining to Borrower is accurate and
complete. If Borrower does not now have an organizational identification number, but later obtains
one, Borrower shall forthwith notify Bank of such organizational identification number.
The execution, delivery and performance of the Loan Documents have been duly authorized, and
do not conflict with Borrower’s organizational documents, nor constitute an event of default under
any material agreement by which Borrower is bound. Borrower is not in default under any agreement
to which or by which it is bound in which the default could reasonably be expected to cause a
Material Adverse Change.
5.2 Collateral. Borrower has good title to the Collateral, free of Liens except
Permitted Liens. All inventory is in all material respects of good and marketable quality, free
from material defects. Borrower has no deposit account, other than the deposit accounts with Bank
and deposit accounts described in the Perfection Certificate delivered to Bank in connection
herewith. The Collateral is not in the possession of any third party bailee (such as a warehouse).
Except as hereafter disclosed to Bank in writing by Borrower, none of the components of the
Collateral shall be maintained at locations other than as provided in the Perfection Certificate.
In the event that Borrower, after the date hereof, intends to store or otherwise deliver any
portion of the Collateral to a bailee, then Borrower will first receive the written consent of Bank
and such bailee must acknowledge in writing that the bailee is holding such Collateral for the
benefit of Bank.
5.3 Financed Receivables. Borrower represents and warrants for each Financed
Receivable:
(a) Each Financed Receivable is an Eligible Account;
(b) Borrower is the owner with legal right to sell, transfer, assign and encumber such
Financed Receivable;
(c) The correct amount is on the Invoice Transmittal and is not disputed;
(d) Payment is not contingent on any obligation or contract and Borrower has fulfilled all its
obligations as of the Invoice Transmittal date;
(e) Each Financed Receivable is based on an actual sale and delivery of goods and/or services
rendered, is due to Borrower, is not past due or in default, has not been previously sold,
assigned, transferred, or pledged and is free of any liens, security interests and encumbrances
other than Permitted Liens;
(f) There are no defenses, offsets, counterclaims or agreements for which the Account Debtor
may claim any deduction or discount;
(g) Borrower reasonably believes no Account Debtor is insolvent or subject to any Insolvency
Proceedings;
(h) Borrower has not filed or had filed against it Insolvency Proceedings and does not
anticipate any filing;
(i) Bank has the right to endorse and/ or require Borrower to endorse all payments received on
Financed Receivables and all proceeds of Collateral; and
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(j) No representation, warranty or other statement of Borrower in any certificate or written
statement given to Bank contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statement contained in the certificates or statement not
misleading.
5.4 Litigation. There are no actions or proceedings pending or, to the knowledge of
Borrower’s Responsible Officers or legal counsel, threatened by or against Borrower or any
Subsidiary in which an adverse decision could reasonably be expected to cause a Material Adverse
Change.
5.5 No Material Deviation in Financial Statements. All consolidated financial
statements for Borrower and any Subsidiary delivered to Bank fairly present in all material
respects Borrower’s consolidated financial condition and Borrower’s consolidated results of
operations. There has not been any material deterioration in Borrower’s consolidated financial
condition since the date of the most recent financial statements submitted to Bank.
5.6 Solvency. Borrower is able to pay its debts (including trade debts) as they
mature.
5.7 Regulatory Compliance. Borrower is not an “investment company” or a company
“controlled” by an “investment company” under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under Regulations X, T and
U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with
the Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances or rules, the
violation of which could reasonably be expected to cause a Material Adverse Change. None of
Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or any Subsidiary or,
to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower and each Subsidiary
has timely filed all required tax returns and paid, or made adequate provision to pay, all material
taxes, except those being contested in good faith with adequate reserves under GAAP. Borrower and
each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations
or filings with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to obtain or make such
consents, declarations, notices or filings would not reasonably be expected to cause a Material
Adverse Change.
5.8 Subsidiaries. Borrower does not own any stock, partnership interest or other
equity securities except for Permitted Investments.
5.9 Inactive Subsidiaries. Borrower’s Subsidiaries, Adcor Security Products, Inc.,
Telular International, and Wireless Domain Inc., are each inactive entities, and will be dissolved
within thirty (30) calendar days of the Closing Date.
5.10 Full Disclosure. No written representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements contained in the
certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 Government Compliance. Borrower shall maintain its and all Subsidiaries’ legal
existence and good standing in their respective jurisdictions of formation and maintain
qualification in each jurisdiction in which the failure to so qualify would reasonably be expected
to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject,
noncompliance with which could have a material adverse effect on Borrower’s business or operations
or would reasonably be expected to cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
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(a) Borrower shall deliver to Bank: (i) as soon as available, but no later than thirty (30)
days after the last day of each month, a company prepared consolidated balance sheet and income
statement covering Borrower’s consolidated operations during the period certified by a Responsible
Officer and in a form acceptable to Bank; (ii) within five (5) days of filing, copies of all
statements, reports and notices made available to Borrower’s security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission; (iii) a prompt report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of Two Hundred
Fifty Thousand Dollars ($250,000.00) or more; (iv) prompt notice of any material change in the
composition of the Intellectual Property Collateral, or the registration of any copyright,
including any subsequent ownership right of Borrower in or to any Copyright, Patent or Trademark
not shown in the IP Agreement or knowledge of an event that materially adversely affects the value
of the Intellectual Property Collateral; and (v) budgets, sales projections, operating plans or
other financial information reasonably requested by Bank.
(b) Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank
with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in
the form of Exhibit B.
(c) Borrower will allow Bank to audit Borrower’s Collateral, including, but not limited to,
Borrower’s Accounts and accounts receivable, at Borrower’s expense, upon reasonable notice to
Borrower; provided, however, prior to the occurrence of an Event of Default, Borrower shall be
obligated to pay for not more than two (2) audits per year. After the occurrence of an Event of
Default, Bank may audit Borrower’s Collateral, including, but not limited to, Borrower’s Accounts
and accounts receivable at Borrower’s expense and at Bank’s sole and exclusive discretion and
without notification and authorization from Borrower.
(d) Upon Bank’s request, provide a written report respecting any Financed Receivable, if
payment of any Financed Receivable does not occur by its due date and include the reasons for the
delay.
(e) Provide Bank with, as soon as available, but no later than thirty (30) days following each
Reconciliation Period, an aged listing of accounts receivable and accounts payable by invoice date,
in form acceptable to Bank.
6.3 Taxes. Borrower shall make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments (other than taxes and assessments which
Borrower is contesting in good faith, with adequate reserves maintained in accordance with GAAP)
and will deliver to Bank, on demand, appropriate certificates attesting to such payments.
6.4 Insurance. Borrower shall keep its business and the Collateral insured for risks
and in amounts, and as Bank may reasonably request. Insurance policies shall be in a form, with
companies, and in amounts that are reasonably satisfactory to Bank. All property policies shall
have a lender’s loss payable endorsement showing Bank as an additional loss payee and all
liability policies shall show Bank as an additional insured and all policies shall provide that
the insurer must give Bank at least twenty (20) days notice before canceling its policy. At Bank’s
request, Borrower shall deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the
Obligations. If Borrower fails to obtain insurance as required under this Section or to pay any
amount or furnish any required proof of payment to third persons and Bank, Bank may make all or
part of such payment or obtain such insurance policies required in this Section and take any
action under the policies Bank deems prudent.
6.5 Accounts.
(a) In order to permit Bank to monitor Borrower’s financial performance and condition,
Borrower, and all Borrower’s Subsidiaries, shall maintain Borrower’s, and such Subsidiaries’,
depository and operating accounts and securities accounts with Bank and all of Borrower’s and such
Subsidiaries’ cash or securities in excess of that amount used for Borrower’s or such Subsidiaries’
current operations shall be maintained at Bank or SVB Securities, provided that Borrower may
maintain an account with a financial institution in Singapore which contains no greater than One
Hundred Thousand Dollars ($100,000.00) at all times. Any Guarantor shall maintain all
depository, operating and securities accounts with Bank, or SVB Securities.
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(b) Borrower shall identify to Bank, in writing, any bank or securities account opened by
Borrower with any institution other than Bank. In addition, for each such account that Borrower or
Guarantor at any time opens or maintains, Borrower shall, at Bank’s request and option, pursuant to
an agreement in form and substance acceptable to Bank, cause the depository bank or securities
intermediary to agree that such account is the collateral of Bank, and enter into a “control
agreement” pursuant to the terms hereunder. The provisions of the previous sentence shall not
apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and
benefit payments to or for the benefit of Borrower’s employees.
6.6 Further Assurances. Borrower shall execute any further instruments and take
further action as Bank reasonably requests to perfect or continue Bank’s security interest in the
Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank’s prior written consent, which consent
shall not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, transfer, assign or otherwise dispose of
(collectively a “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its
business or property, including the Intellectual Property, except for Transfers (i) of inventory in
the ordinary course of business; (ii) of non-exclusive licenses and similar arrangements for the
use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) of
worn-out or obsolete equipment. Borrower shall not enter into an agreement with any Person other
than Bank which restricts the subsequent granting of a security interest in the Intellectual
Property.
7.2 Changes in Business, Ownership, Management or Business Locations. Engage in or
permit any of its Subsidiaries to engage in any business other than the businesses currently
engaged in by Borrower or reasonably related thereto. Borrower shall not, without at least thirty
(30) days prior written notice to Bank: (i) relocate its chief executive office, or add any new
offices or business locations, including warehouses (unless such new offices or business locations
contain less than Twenty Thousand Dollars ($20,000.00) in Borrower’s assets or property), or (ii)
change its jurisdiction of organization, or (iii) change its organizational structure or type, or
(iv) change its legal name, or (v) change any organizational number (if any) assigned by its
jurisdiction of organization.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries
to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another Person. A Subsidiary
may merge or consolidate into another Subsidiary or into Borrower.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit
any Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance. Create, incur, or allow any Lien on any of its property, including
the Intellectual Property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any
Collateral not to be subject to the first priority security interest granted herein. The
Collateral may also be subject to Permitted Liens.
7.6 Distributions; Investments. (i) Directly or indirectly acquire or own any Person,
or make any Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so; or (ii) pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock.
7.7 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower, except for transactions that are in
the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated
Person.
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7.8 Subordinated Debt. Make or permit any payment on any Subordinated Debt, except
under the terms of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt, without Bank’s prior written consent.
7.9 Compliance. Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940 or undertake as one of its important
activities extending credit to purchase or carry margin stock, or use the proceeds of any Advance
for that purpose; fail to meet the minimum funding requirements of ERISA, or permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal
Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably
be expected to have a material adverse effect on Borrower’s business or operations or would
reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries to do
so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1
Payment Default. Borrower fails to pay any of the Obligations when due;
8.2 Covenant Default. Borrower fails or neglects to perform any obligation in Article
6 or violates any covenant in Article 7 or fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant or agreement contained in this Agreement, any Loan
Documents and as to any default under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the occurrence
thereof; provided, however, grace and cure periods provided under this section shall not apply to
financial covenants or any other covenants that are required to be satisfied, completed or tested
by a date certain;
8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment. (i) Any portion of Borrower’s assets is attached, seized, levied on,
or comes into possession of a trustee or receiver and the attachment, seizure or levy is not
removed in ten (10) days; (ii) the service of process upon Bank or Borrower seeking to attach, by
trustee or similar process, any funds of Borrower on deposit with Bank, or any entity under the
control of Bank (including a subsidiary); (iii) Borrower is enjoined, restrained, or prevented by
court order from conducting any part of its business; (iv) a judgment or other claim becomes a Lien
on a portion of Borrower’s assets; or (v) a notice of lien, levy, or assessment is filed against
any of Borrower’s assets by any government agency and not paid within ten (10) days after Borrower
receives notice;
8.5 Insolvency. (i) Borrower is unable to pay its debts (including trade debts) as
they become due or otherwise becomes insolvent; (ii) Borrower begins an Insolvency Proceeding; or
(iii) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within
forty-five (45) days (but no Advances shall be made before any Insolvency Proceeding is
dismissed);
8.6 Other Agreements. If there is a default in any agreement to which Borrower is a
party with a third party or parties resulting in a right by such third party or parties, whether or
not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred
Thousand Dollars ($100,000.00) or that could result in a Material Adverse Change;
8.7 Judgments. If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000.00) shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days
(provided that no Advances will be made prior to the satisfaction or stay of such judgment);
8.8 Misrepresentations. If Borrower or any Person acting for Borrower makes any
material misrepresentation or material misstatement now or later in any warranty or representation
in this Agreement or in any writing delivered to Bank or to induce Bank to enter this Agreement or
any Loan Document;
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8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower
and any creditor of Borrower that signed a subordination agreement with Bank, or any creditor that
has signed a subordination agreement with Bank breaches any terms of the subordination agreement.
8.10 Purchase Agreement. An Event of Default (as such term is defined in the Purchase
Agreement) occurs under the Purchase Agreement.
9 BANK’S RIGHTS AND REMEDIES
9.1 Rights and Remedies. When an Event of Default occurs and continues Bank may,
without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event of Default described
in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower’s benefit under this Agreement or
under any other agreement between Borrower and Bank;
(c) Demand that Borrower (i) deposits cash with Bank in an amount equal to the aggregate
amount of any letters of credit remaining undrawn, as collateral security for the repayment of any
future drawings under such letters of credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the
remaining term of any letters of credit;
(d) Settle or adjust disputes and claims directly with Account Debtors for amounts, on terms
and in any order that Bank considers advisable and notify any Person owing Borrower money of Bank’s
security interest in such funds and verify the amount of such account. Borrower shall collect all
payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in
the form received from the Account Debtor, with proper endorsements for deposit;
(e) Make any payments and do any acts it considers necessary or reasonable to protect its
security interest in the Collateral. Borrower shall assemble the Collateral if Bank requests and
make it available as Bank designates. Bank may enter premises where the Collateral is located,
take and maintain possession of any part of the Collateral, and pay, purchase, contest, or
compromise any Lien which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without
charge, to exercise any of Bank’s rights or remedies;
(f) Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any
amount held by Bank owing to or for the credit or the account of Borrower;
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for
sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, Borrower’s labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or
any similar property as it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this
Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;
(h) Place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive
control, any entitlement order, or other directions or instructions pursuant to any control
agreement or similar agreements providing control of any Collateral; and
(i) Exercise all rights and remedies and dispose of the Collateral according to the Code.
9.2 Bank Expenses; Unpaid Fees. Any amounts paid by Bank as provided herein shall
constitute Bank Expenses and are immediately due and payable, and shall bear interest at the
Default Rate and be secured by
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the Collateral. No payments by Bank shall be deemed an agreement to make similar payments in
the future or Bank’s waiver of any Event of Default. In addition, any amounts advanced hereunder
which are not based on Financed Receivables (including, without limitation, unpaid fees and Finance
Charges as described in Section 2.2) shall accrue interest at the Default Rate and be secured by
the Collateral.
9.3 Bank’s Liability for Collateral. So long as Bank complies with reasonable banking
practices regarding the safekeeping of Collateral and Section 9-207 of the Code, Bank shall not be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any
carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or
destruction of the Collateral.
9.4 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan
Documents, and all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election,
and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay is not a waiver,
election, or acquiescence. No waiver hereunder shall be effective unless signed by Bank and then is
only effective for the specific instance and purpose for which it was given.
9.5 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees held by Bank on which Borrower is liable.
9.6 Default Rate. After the occurrence of an Event of Default, all Obligations shall
accrue interest at the Applicable Rate plus three percent (3.0%) per annum (the “Default Rate”).
10 NOTICES.
Notices or demands by either party about this Agreement must be in writing and personally
delivered or sent by an overnight delivery service, by certified mail postage prepaid return
receipt requested, or by fax to the addresses listed at the beginning of this Agreement. A party
may change notice address by written notice to the other party.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Illinois law governs the Loan Documents without regard to principles of conflicts of law.
Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in
Illinois; provided, however, that if for any reason Bank cannot avail itself of such courts in the
State of Illinois, Borrower accepts jurisdiction of the courts and venue in Santa Xxxxx County,
California. NOTWITHSTANDING THE FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION OR
PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK
DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S
RIGHTS AGAINST BORROWER OR ITS PROPERTY.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT
FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS
COUNSEL.
12 GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not assign this Agreement or any
rights or Obligations under it without Bank’s prior written consent which may be granted or
withheld in Bank’s discretion. Bank has the right, without the consent of or notice to Borrower,
to sell, transfer, assign, negotiate, or grant participation in all or any
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part of, or any interest in, Bank’s obligations, rights and benefits under this Agreement, the
Loan Documents or any related agreement.
12.2 Indemnification. Borrower hereby indemnifies, defends and holds Bank and its
directors, officers, employees and agents harmless against: (a) all obligations, demands, claims,
and liabilities asserted by any other party or Person in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank
from, following, or consequential to transactions between Bank and Borrower (including reasonable
attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful
misconduct.
12.3 Right of Set-Off. Borrower hereby grants to Bank, a lien, security interest and
right of set-off as security for all Obligations to Bank, whether now existing or hereafter arising
upon and against all deposits, credits, collateral and property, now or hereafter in the
possession, custody, safekeeping or control of Bank or any entity under the control of Bank
(including a Bank subsidiary) or in transit to any of them. At any time after the occurrence and
during the continuance of an Event of Default, without demand or notice, Bank may set off the same
or any part thereof and apply the same to any liability or obligation of Borrower even though
unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND
ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH
DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
WAIVED.
12.4 Time of Essence. Time is of the essence for the performance of all Obligations
in this Agreement.
12.5 Severability of Provision. Each provision of this Agreement is severable from
every other provision in determining the enforceability of any provision.
12.6 Amendments in Writing; Integration. All amendments to this Agreement must be in
writing signed by both Bank and Borrower. This Agreement and the Loan Documents represent the
entire agreement about this subject matter, and supersede prior negotiations or agreements. All
prior agreements, understandings, representations, warranties, and negotiations between the parties
about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the
Loan Documents.
12.7 Counterparts. This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and delivered, are an
original, and all taken together, constitute one Agreement.
12.8 Survival. All covenants, representations and warranties made in this Agreement
continue in full force until this Agreement has terminated pursuant to its terms, and all
Obligations have been satisfied. The obligation of Borrower in Section 12.2 to indemnify Bank
shall survive until the statute of limitations with respect to such claim or cause of action shall
have run.
12.9 Confidentiality. In handling any confidential information, Bank shall exercise
the same degree of care that it exercises for its own proprietary information, but disclosure of
information may be made: (i) to Bank’s subsidiaries or affiliates in connection with their business
with Borrower; (ii) to prospective transferees or purchasers of any interest in the Advances
(provided, however, Bank shall use commercially reasonable efforts in obtaining such prospective
transferee’s or purchaser’s agreement to the terms of this provision); (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank’s examination or
audit; and (v) as Bank considers appropriate in exercising remedies under this Agreement.
Confidential information does not include information that either: (a) is in the public domain or
in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure
to Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
13 DEFINITIONS
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13.1 Definitions. In this Agreement:
“Accounts” are all existing and later arising accounts, contract rights, and other obligations
owed Borrower in connection with its sale or lease of goods (including licensing software and other
technology) or provision of services, all credit insurance, guaranties, other security and all
merchandise returned or reclaimed by Borrower and Borrower’s Books relating to any of the
foregoing, as such definition may be amended from time to time according to the Code.
“Account Debtor” is as defined in the Code and shall include, without limitation, any person
liable on any Financed Receivable, such as, a guarantor of the Financed Receivable and any issuer
of a letter of credit or banker’s acceptance.
“Adjusted Quick Ratio” is the ratio of Quick Assets to Current Liabilities minus Deferred
Revenue.
“Adjustments” are all discounts, allowances, returns, disputes, counterclaims, offsets,
defenses, rights of recoupment, rights of return, warranty claims, or short payments, asserted by
or on behalf of any Account Debtor for any Financed Receivable.
“Advance” is defined in Section 2.1.1.
“Advance Rate” eighty percent (80.0%), net of any offsets related to each specific Account
Debtor, including, without limitation, Deferred Revenue, or such other percentage as Bank
establishes under Section 2.1.1.
“Affiliate” is a Person that owns or controls directly or indirectly the Person, any Person
that controls or is controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person that is a limited
liability company, that Person’s managers and members.
“Anniversary Fee” is defined in Section 2.2.2.
“Applicable Rate” is a per annum rate equal to the Prime Rate plus two percent (2.0%);
provided, however, if Borrower maintains an Adjusted Quick Ratio of at least 1.50 to 1.0 at all
times during any Reconciliation Period, then the Applicable Rate will be a per annum rate equal to
the Prime Rate plus one percent (1.0%), effective as of such Reconciliation Period and for each
Reconciliation Period thereafter in which the Borrower’s Adjusted Quick Ratio is at least 1.50 to
1.0 at all times, provided further that, if Borrower maintains an Adjusted Quick Ratio of at least
2.50 to 1.0 at all times during any Reconciliation Period, then the Applicable Rate will be a per
annum rate equal to the Prime Rate, effective as of such Reconciliation Period and for each
Reconciliation Period thereafter in which the Borrower’s Adjusted Quick Ratio is at least 2.50 to
1.0 at all times.
“Bank Expenses” are all audit fees and expenses and reasonable costs or expenses (including
reasonable attorneys’ fees and expenses) for preparing, negotiating, administering, defending and
enforcing the Loan Documents (including appeals or Insolvency Proceedings).
“Borrower’s Books” are all Borrower’s books and records including ledgers, records regarding
Borrower’s assets or liabilities, the Collateral, business operations or financial condition and
all computer programs or storage or any equipment containing the information.
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank is closed.
“Closing Date” is the date of this Agreement.
“Code” is the Uniform Commercial Code as adopted in Illinois, as amended and as may be amended
and in effect from time to time.
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“Collateral” is any and all properties, rights and assets of Borrower granted by Borrower to
Bank or arising under the Code, now, or in the future, in which Borrower obtains an interest, or
the power to transfer rights, in the property described on Exhibit A.
“Collateral Handling Fee” is defined in Section 2.2.4.
“Collections” are all funds received by Bank from or on behalf of an Account Debtor for
Financed Receivables.
“Compliance Certificate” is attached as Exhibit B.
“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or
not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted
or sold with recourse by that Person, or for which that Person is directly or indirectly liable;
(ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all
obligations from any interest rate, currency or commodity swap agreement, interest rate cap or
collar agreement, or other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the primary obligation for which the
Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability
for it determined by the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.
“Current Liabilities” are all obligations and liabilities of Borrower to Bank, plus, without
duplication, the aggregate amount of Borrower’s Total Liabilities which mature within one (1) year.
“Default Rate” is defined in Section 9.6.
“Deferred Revenue” is all amounts received or invoiced, as appropriate, in advance of
performance under contracts and not yet recognized as revenue.
“Eligible Accounts” are billed Accounts in the ordinary course of Borrower’s business that
meet all Borrower’s representations and warranties in Section 5.3, have been, at the option of
Bank, confirmed in accordance with Section 2.1.1(d), and are due and owing from Account Debtors
deemed creditworthy by Bank in its sole discretion. Without limiting the fact that the
determination of which Accounts are eligible hereunder is a matter of Bank discretion in each
instance, Eligible Accounts shall not include the following Accounts (which listing may be amended
or changed in Bank’s discretion with notice to Borrower):
(a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date;
(b) Accounts for an Account Debtor, fifty percent (50%) or more of whose Accounts have not
been paid within ninety (90) days of invoice date;
(c) Accounts for which the Account Debtor does not have its principal place of business in the
United States, unless agreed to by Bank in writing, in its sole discretion, on a case-by-case
basis;
(d) Accounts for which the Account Debtor is a federal, state or local government entity or
any department, agency, or instrumentality thereof except for Accounts of the United States if the
payee has assigned its payment rights to Bank and the assignment has been acknowledged under the
Assignment of Claims Act of 1940 (31 U.S.C. 3727);
(e) Accounts for which Borrower owes the Account Debtor, but only up to the amount owed
(sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts);
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(f) Accounts for demonstration or promotional equipment, or in which goods are consigned,
sales guaranteed, sale or return, sale on approval, xxxx and hold, or other terms if the Account
Debtor’s payment may be conditional;
(g) Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;
(h) Accounts in which the Account Debtor disputes liability or makes any claim and Bank
believes there may be a basis for dispute (but only up to the disputed or claimed amount), or if
the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of
business; or
(i) Accounts for which Bank reasonably determines collection to be doubtful or any Accounts
which are unacceptable to Bank for any reason.
“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.
“Events of Default” are set forth in Article 8.
“Facility Amount” is Twelve Million Five Hundred Thousand Dollars ($12,500,000.00).
“Facility Fee” is defined in Section 2.2.2.
“Finance Charges” is defined in Section 2.2.3.
“Financed Receivables” are all those Eligible Accounts, including their proceeds which Bank
finances and makes an Advance, as set forth in Section 2.1.1. A Financed Receivable stops being a
Financed Receivable (but remains Collateral) when the Advance made for the Financed Receivable has
been fully paid.
“Financed Receivable Balance” is the total outstanding gross face amount, at any time, of any
Financed Receivable.
“GAAP” is generally accepted accounting principles.
“Guarantor” is any present or future guarantor of the Obligations.
“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or
services, such as reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease
obligations and (d) Contingent Obligations.
“Insolvency Proceeding” is any proceeding by or against any Person under the United States
Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
“Investment” is any beneficial ownership of (including stock, partnership interest or other
securities) any Person, or any loan, advance or capital contribution to any Person.
“Invoice Transmittal” shows Eligible Accounts which Bank may finance and, for each such
Account, includes the Account Debtor’s, name, address, invoice amount, invoice date and invoice
number.
“Intellectual Property” is the “Intellectual Property Collateral” as defined in the IP
Agreement.
“IP Agreement” is a certain Intellectual Property Security Agreement executed and delivered by
Borrower to Bank.
“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
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“Loan Documents” are, collectively, this Agreement, the Purchase Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future agreement between
Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, extended
or restated.
“Loan Fees” is defined in Section 2.2.2.
“Lockbox” is defined in Section 2.2.7.
“Material Adverse Change” is: (i) A material impairment in the perfection or priority of
Bank’s security interest in the Collateral or in the value of such Collateral; (ii) a material
adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or
(iii) a material impairment of the prospect of repayment of any portion of the Obligations.
“Maturity Date” is June 26, 2008.
“Obligations” are all advances, liabilities, obligations, covenants and duties owing, arising,
due or payable by Borrower to Bank now or later under this Agreement, or any other document,
instrument or agreement, account (including those acquired by assignment) primary or secondary,
such as all Advances, Finance Charges, Loan Fees, Collateral Handling, interest, fees, expenses,
professional fees and attorneys’ fees, or other amounts now or hereafter owing by Borrower to Bank.
“Perfection Certificate” is a certain Perfection Certificate completed and delivered by
Borrower to Bank in connection with this Agreement.
“Permitted Indebtedness” is:
(a) Borrower’s indebtedness to Bank under this Agreement or the Loan Documents;
(b) Subordinated Debt;
(c) Indebtedness to trade creditors incurred in the ordinary course of business;
(d) Indebtedness secured by Permitted Liens;
(e) Indebtedness existing on the Closing Date and detailed on the Perfection Certificate; and
(f) Extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (e) above, provided that the principal amount thereof is not
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
“Permitted Investments” are: (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any state maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its creation and having the
highest rating from either Standard & Poor’s Corporation or Xxxxx’x Investors Service, Inc., (iii)
Bank’s certificates of deposit issued maturing no more than 1 year after issue, and (iv) any other
investments administered through Bank.
“Permitted Liens” are:
(a) Liens arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which Borrower maintains adequate reserves on
its Books, if they have no priority over any of Bank’s security interests;
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(c) Purchase money Liens securing no more than Two Hundred Fifty Thousand Dollars
($250,000.00) in the aggregate amount outstanding (i) on equipment acquired or held by Borrower
incurred for financing the acquisition of the equipment, or (ii) existing on equipment when
acquired, if the Lien is confined to the property and improvements and the proceeds of the
equipment;
(d) Leases or subleases and non-exclusive licenses or sublicenses granted in the ordinary
course of Borrower’s business, if the leases, subleases, licenses and sublicenses permit
granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by
Liens described in (a) through (d), but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase; and
(f) Liens existing on the Closing Date and detailed on the Perfection Certificate.
“Person” is any individual, sole proprietorship, partnership, limited liability company, joint
venture, company, trust, unincorporated organization, association, corporation, institution, public
benefit corporation, firm, joint stock company, estate, entity or government agency.
“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate.
“Purchase Agreement” is that certain Purchase Agreement as of even date herewith, as amended
from time to time, by and between Borrower and Bank.
“Quick Assets” is, on any date, Borrower’s unrestricted cash and cash equivalents at Bank, and
net billed accounts receivable determined according to GAAP.
“Reconciliation Period” is each calendar month.
“Responsible Officer” is each of the Chief Executive Officer, President, Chief Financial
Officer and Controller of Borrower.
“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s debt to Bank
(pursuant to a subordination agreement entered into between Bank, Borrower and the subordinated
creditor), on terms acceptable to Bank.
“Subsidiary” is any Person, or any other business entity of which more than 50% of the voting
stock or other equity interests is owned or controlled, directly or indirectly, by the Person or
one or more Affiliates of the Person.
“Total Liabilities” is on any day, obligations that should, under GAAP, be classified as
liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and current
portion of Subordinated Debt permitted by Bank to be paid by Borrower, but excluding all other
Subordinated Debt.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
date first above written.
| BORROWER: | ||||||
| TELULAR CORPORATION | ||||||
By |
||||||
| Name: | ||||||
| Title: | ||||||
| BANK: | ||||||
| SILICON VALLEY BANK | ||||||
By |
||||||
| Name: | ||||||
| Title: | ||||||
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EXHIBIT A
The Collateral consists of all of Borrower’s right, title and interest in and to the
following:
All goods, equipment, inventory, contract rights or rights to payment of money, leases,
license agreements, franchise agreements, general intangibles (including payment intangibles),
accounts (including health-care receivables), documents, instruments (including any promissory
notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters
of credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort
claims, securities, and all other investment property, supporting obligations, and financial
assets, whether now owned or hereafter acquired, wherever located; and
Any copyright rights, copyright applications, copyright registrations and like protections in
each work of authorship and derivative work, whether published or unpublished, now owned or later
acquired; any patents, trademarks, service marks and applications therefor; trade styles, trade
names, any trade secret rights, including any rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned or hereafter
acquired; or any claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower’s books relating to the foregoing and any and all claims, rights and interests in
any of the above and all substitutions for, additions, attachments, accessories, accessions and
improvements to and replacements, products, proceeds and insurance proceeds of any or all of the
foregoing.
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EXHIBIT B
SILICON VALLEY BANK
SPECIALTY FINANCE DIVISION
Compliance Certificate
SPECIALTY FINANCE DIVISION
Compliance Certificate
I, as authorized officer of TELULAR CORPORATION (“Borrower”) certify under the Loan and
Security Agreement (the “Agreement”) between Borrower and Silicon Valley Bank (“Bank”) as follows
(all capitalized terms used herein shall have the meaning set forth in the Agreement):
Borrower represents and warrants for each Financed Receivable:
Each Financed Receivable is an Eligible Account.
Borrower is the owner with legal right to sell, transfer, assign and encumber such Financed
Receivable;
The correct amount is on the Invoice Transmittal and is not disputed;
Payment is not contingent on any obligation or contract and Borrower has fulfilled all its
obligations as of the Invoice Transmittal date;
Each Financed Receivable is based on an actual sale and delivery of goods and/or services rendered,
is due to Borrower, is not past due or in default, has not been previously sold, assigned,
transferred, or pledged and is free of any liens, security interests and encumbrances other than
Permitted Liens;
There are no defenses, offsets, counterclaims or agreements for which the Account Debtor may claim
any deduction or discount;
It reasonably believes no Account Debtor is insolvent or subject to any Insolvency Proceedings;
It has not filed or had filed against it Insolvency Proceedings and does not anticipate any filing;
Bank has the right to endorse and/ or require Borrower to endorse all payments received on Financed
Receivables and all proceeds of Collateral.
No representation, warranty or other statement of Borrower in any certificate or written statement
given to Bank contains any untrue statement of a material fact or omits to state a material fact
necessary to make the statement contained in the certificates or statement not misleading.
Additionally, Borrower represents and warrants as follows:
Borrower and each Subsidiary is duly existing and in good standing in its state of formation and
qualified and licensed to do business in, and in good standing in, any state in which the conduct
of its business or its ownership of property requires that it be qualified except where the failure
to do so could not reasonably be expected to cause a Material Adverse Change. The execution,
delivery and performance of the Loan Documents have been duly authorized, and do not conflict with
Borrower’s organizational documents, nor constitute an event of default under any material
agreement by which Borrower is bound. Borrower is not in default under any agreement to which or
by which it is bound in which the default could reasonably be expected to cause a Material Adverse
Change.
Borrower has good title to the Collateral, free of Liens except Permitted Liens. All inventory is
in all material respects of good and marketable quality, free from material defects.
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Borrower is not an “investment company” or a company “controlled” by an “investment company” under
the Investment Company Act. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of
Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards
Act. Borrower has not violated any laws, ordinances or
rules, the violation of which could reasonably be expected to cause a Material Adverse Change.
None of Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or any
Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing,
storing, treating, or transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay,
all material taxes, except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted except where the failure to obtain or
make such consents, declarations, notices or filings would not reasonably be expected to cause a
Material Adverse Change.
All representations and warranties in the Agreement are true and correct in all material respects
on this date, and Borrower represents that there is no existing Event of Default.
Sincerely,
Sincerely,
Signature
Title
Date
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