Loan and Security Agreement - Comerica Bank-California and VA Research Inc.
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VA RESEARCH, INC.
LOAN AND SECURITY AGREEMENT
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This LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as of
February 18, 1999, by and between COMERICA BANK-CALIFORNIA ("Bank") and VA
RESEARCH, INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions.
As used in this Agreement, the following terms shall have the
following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of
the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls
or is controlled by or is under common control with such Person, and each of
such Person's senior executive officers, directors, partners and, for any
Person that is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and
expenses of appeal or review, or those incurred in any Insolvency Proceeding),
whether or not suit is brought.
"Base Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "Base Rate," whether or not such announced
rate is the lowest rate available from Bank.
"Borrower's Books" means all of Borrower's books and records
including without limitation: ledgers, records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs or tape files, and the equipment containing such
information.
"Borrowing Base" means: (i) at any time prior to the Equity
Infusion, an amount equal to eighty percent (80%) of Eligible Accounts plus
$250,000, and (ii) at any time from and after the Equity Infusion, an amount
equal to eighty percent (80%) of Eligible Accounts, in either case as
determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
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"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to
Four Million Dollars ($4,000,000).
"Committed Equipment Line" means a credit extension of up to
Five Hundred Thousand Dollars ($500,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Equipment Advance, Letter
of Credit, Exchange Contract or any other extension of credit by Bank for the
benefit of Borrower hereunder.
"Current Liabilities" means, as of any applicable date,
all amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
as at such date, plus, to the extent not already included therein, all
outstanding Credit Extensions made under this Agreement, including all
indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such indebtedness is renewable or extendable at
the option of Borrower or any Subsidiary to a date more than one year from the
date of determination, but excluding Subordinated Debt.
"Debt Service Coverage" means, as measured quarterly as of the
last day of each fiscal quarter of Borrower, on a consolidated basis determined
in accordance with GAAP, the ratio of (a) an amount equal to the sum of (i) net
income, plus (ii) depreciation and amortization of intangible assets and other
non-cash charges to income to (b) an amount equal to the sum of all scheduled
repayments and mandatory prepayments of principal on account of long-term
indebtedness for such quarter.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon thirty (30) days prior written notification
thereof to Borrower in accordance with the provisions hereof. Unless otherwise
agreed to by Bank in writing, Eligible Accounts shall not include the following:
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(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, twenty-five
percent (25%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty percent (20%) of
all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States except for Eligible
Foreign Accounts;
(e) Accounts with respect to which the account debtor is a
federal, state or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts, etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
after reasonable inquiry and reasonable consultation with Borrower to be
doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit
either advised or negotiated through Bank or in favor of Bank as beneficiary,
in an amount and of a tenor, and issued by a financial institution, acceptable
to Bank; or (3) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1.3.
"Equipment Availability End Date" has the meaning set forth in
Section 2.1.3.
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"Equity Infusion" means the first date after the date hereof on
which Borrower receives net proceeds from the issuance of its equity securities
or Subordinated Debt.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United Sates from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means all of Borrower's
right, title and interest in and to the following:
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, or Mask Works, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents or Mask Works; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and
any documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
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"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section
2.1.2.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask works or similar rights available
for the protection of semiconductor chips, now owned or hereafter acquired.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means December 31, 2002.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections, including without limitation improvements, divisions,
continuations, renewals, reissues, extentions and continuations-in-part of the
same.
"Payment Date" means the first calendar day of each month,
commencing on the first such date after the Closing Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness to trade creditors and with respect to surety
bonds and similar obligations incurred in the ordinary course of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited
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hereby), and indebtedness of any Subsidiary to any other Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of any
other Subsidiary (provided that the primary obligations are not prohibited
hereby);
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases and indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such equipment
or the fair market value of such equipment on the date of acquisition; provided
that the total aggregate amount of such capital leases and indebtedness
(including any Equipment Advances drawn under the Committed Equipment Line)
shall not exceed $1,000,000 in any fiscal year; and
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank, and (iv) any Investments permitted by
Borrower's investment policy, as amended from time to time, provided that such
investment policy (and such amendments thereto) has been approved by Bank;
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transaction in the ordinary
course of business;
(d) Investments accepted in connection with Transfers permitted
by Section 7.1;
(e) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the Board of
Directors of Borrower determines that such compensation is in the best
interests of Borrower, (ii) travel advances, employee relocation loans and
other employee loans and advances in the ordinary course of business, and (iii)
loans to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower's Board of Directors;
(f) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(g) Investments pursuant to or arising under currency agreements
or interest rate agreements entered into in the ordinary course of business;
(h) Investments consisting of notes receivable of, or prepaid,
royalties and other credit extensions to, customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph
(i) shall not apply to investments by Borrower in any Subsidiary;
(i) Investments constituting acquisitions permitted under
Section 7.3;
(j) Deposit accounts of Borrower in which Bank has a Lien prior
to any other Lien;
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(k) Deposit accounts of any Subsidiaries maintained in the
ordinary course of business; and
(l) other investments approved by Borrower's board of directors
not exceeding Five Hundred Thousand Dollars ($500,000) in the aggregate in any
fiscal year.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents:
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement);
(e) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license, provided that such leases, subleases, licenses and sublicenses do not
prohibit the grant of the security interest granted hereunder;
(f) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation that
existed at the time it became or becomes a Subsidiary); provided such Liens are
not granted in contemplation of or in connection with the acquisition of such
asset by Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(h) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect;
(i) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with the
importation of goods;
(j) Liens that are not prior to the Lien of Bank which
constitute rights of set-off of a customary nature or banker's Liens with
respect to amounts on deposit, whether arising by operation of law or by
contract, in connection with arrangement entered in to with banks in the
ordinary course of business;
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(k) Earn-out and royalty obligations existing on the date hereof
or entered into in connection with an acquisition permitted by Section 7.3;
(l) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums; and
(m) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a), (c), (e), (f), (g) and (i) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Quick Assets" means, as of any applicable date, the
unrestricted cash; unrestricted cash-equivalents; net, billed accounts
receivable and investments with maturities of fewer than one year of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means the date immediately preceding
the first anniversary of the date of this Agreement.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth" means, as of any applicable date, the
consolidated total assets of Borrower and its Subsidiary minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Total Liabilities" means, as of any applicable date, all
obligations that should, in accordance with GAAP, be classified as liabilities
on the consolidated balance sheet of Borrower, including in any event all
indebtedness, but specifically excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
1.2 Accounting and other terms.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP and all calculations and determinations made
hereunder shall be made in accordance with GAAP.
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When used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including", "includes" shall always be read as
meaning "including (or includes) without limitation," when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions
Borrower promises to pay to the order of Bank, in lawful money of
the United States of America, the aggregate unpaid principal amount of all
Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Credit Extensions at rates in
accordance with the terms hereof.
2.1.1 Revolving Advances
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed (i) the Committed Revolving Line or the Borrowing Base as
defined in Section 1.1, whichever is less, minus (ii) the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit; provided, however, that Borrower may request and Bank agrees to make
Advances to Borrower of up to $500,000 regardless of the Borrowing Base. Subject
to the terms and conditions of this Agreement, amounts borrowed pursuant to
this Section 2.1.1 may be repaid and reborrowed at any time prior to the
Revolving Maturity Date.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 Letters of Credit
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit for the account of
Borrower in an aggregate outstanding face amount not to exceed (i) the lesser of
the Committed Revolving Line or the Borrowing Base, whichever is less, minus
(ii) the then outstanding principal balance of the Advances, provided that the
face amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) shall not in any case exceed
One Million Dollars ($1,000,000). Each Letter of Credit shall have an expiry
date no later than the Revolving Maturity Date. All Letters of Credit shall be,
in form and substance, acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank's form of standard Application and
Letter of Credit Agreement.
(b) The obligation of Borrower to immediately reimburse
Bank for drawings made under Letters of Credit shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms
of this Agreement and such Letters of Credit, under all circumstances
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whatsoever. Borrower shall indemnify, defend, protect and hold Bank harmless
from any loss, cost, expense or liability, including, without limitation,
reasonable attorneys' fees, arising out of or in connection with any Letters of
Credit.
(c) Borrower may request that Bank issue a Letter of
Credit payable in a currency other than United States Dollars. If a demand for
payment is made under any such Letter of Credit, Bank shall treat such demand as
an Advance to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable
in a currency other than United States Dollars. Bank shall create a reserve
under the Committed Revolving Line for Letters of Credit against fluctuations
in currency exchange rates, in an amount equal to ten percent (10%) of the face
amount of such Letter of Credit. The amount of such reserve may be amended by
Bank from time to time to account for fluctuations in the exchange rate. The
availability of funds under the Committed Revolving Line shall be reduced by the
amount of such reserve for so long as such Letter of Credit remains outstanding.
2.1.3 Equipment Advances.
(a) Subject to and upon the terms and conditions of
this Agreement, at any time from the date hereof through December 31, 1999 (the
"Equipment Availability End Date"), Bank agrees to make advances (each an
"Equipment Advance" and, collectively, the "Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed Equipment Line. To
evidence the Equipment Advance or Equipment Advances. Borrower shall deliver to
Bank, at the time of each Equipment Advance request, an invoice and canceled
check for the equipment to be purchased. The Equipment Advances shall be used
only to finance Equipment acceptable to and approved by Bank, and shall not
exceed one hundred percent (100%) of the invoice amount of such Equipment,
excluding taxes, shipping, warranty charges, freight discounts and installation
expense.
(b) Interest shall accrue from the date of each
Equipment Advance at the rate specified in Section 2.3(a), and shall be payable
monthly on each Payment Date. The first $250,000 of Equipment Advances that are
drawn by Borrower and outstanding on the Equipment Availability End Date or such
earlier date on which the first $250,000 in Equipment Advances is drawn by
Borrower (such date being the "First Term Date") will be payable in thirty-six
(36) equal monthly installments of principal, plus all accrued interest,
beginning on the Payment Date of the month following the First Term Date (but
in no event later than January 1, 2000). Any Equipment Advances drawn by
Borrower in excess of the initial $250,000 and outstanding on the Equipment
Availability End Date or such earlier date on which the entire remaining
$250,000 of the Committed Equipment Line is drawn (such date being the "Second
Term Date") will be payable in thirty-six (36) equal monthly installments of
principal, plus all accrued interest beginning on the Payment Date of the month
following the Second Term Date (but in no event later than January 1, 2000).
All unpaid Equipment Advances, together with accrued interest thereon and any
other amounts owing under this Agreement shall be due and payable on the
Maturity Date. Equipment Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment
Advance, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time one
(1) Business Day before the day on which the Equipment Advance is to be made.
Such notice shall be substantially in the form of Exhibit B. The notice shall
be signed by a Responsible Officer or its designee and include a copy of the
invoice and canceled check for the Equipment to be financed.
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2.2 Overadvances.
If, at any time or for any reason, the amount of Obligations
owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this Agreement
is greater than the aggregate amount available to be drawn under Section 2.1.1,
Borrower shall immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b),
any Advances and/or Equipment Advances shall bear interest on the average daily
balance thereof, at a per annum rate equal to three quarters of a percentage
point (0.75%) above the Base Rate.
(b) Default Rate. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation. Account Number __________ for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Base Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Base Rate is
changed, by an amount equal to such change in the Base Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments.
Prior to the occurrence of an Event of Default, Bank shall
credit a wire transfer of funds, check, or other item of payment to such deposit
account or Obligation as Borrower specifies. After the occurrence of an Event of
Default, the receipt by Bank of any wire transfer of funds, check, or other item
of payment, whether directed to Borrower's deposit account with Bank or to the
Obligations or otherwise, may be immediately applied to conditionally reduce
Obligations, but shall not be considered a payment in respect of the Obligations
unless such payment is of immediately available federal funds or unless and
until such check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or
payment received by Bank after 12:00 noon Pacific time shall be deemed to have
been received by Bank as of the opening of business on the immediately following
Business Day. Whenever any payment to Bank under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.5 Fees.
Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Seventeen Thousand
Five Hundred Dollars ($17,500), which fee shall be due on the Closing Date and
shall be fully earned and non-refundable;
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(b) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts (not to exceed $750 per audit), and for each appraisal of Collateral
and financial analysis and examination of Borrower performed from time to time
by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 Additional Costs.
In case any change in any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement;
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans. Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error: provided, however, that Borrower shall
not be liable for any such amount attributable to any period prior to the date
of hundred eight (180) days prior to the date of such certificate.
2.7 Term.
Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations (excluding
Obligations under Section 2.6 and 12.2 to the extent they remain inchoate at
the time outstanding payment obligations are paid in full) are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension.
The obligation of Bank to make the initial Credit Extension
is subject to the condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, the following:
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(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) financing statements (Forms UCC-I);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(f) a satisfactory audit of the Collateral;
(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions.
The obligation of Bank to make each Credit Extension, including
the initial Credit Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Advance as to the accuracy of the
facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest.
Borrower grants and pledges to Bank a continuing security
interest in all presently existing and hereafter acquired or arising Collateral
in order to secure prompt payment of any and all Obligations and in order to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents. Except as set forth in the Schedule, such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the date hereof, in each case, to the extent that a
security interest in such Collateral can be perfected by the filing of a
financing statement or, in the case of Collateral consisting of instruments,
documents, chattel paper or certificated securities, to the extent that Bank
takes possession of such Collateral. Borrower acknowledges that Bank may place a
"hold" on any Deposit Account pledged as Collateral to secure the Obligations.
Bank agrees to execute and deliver to Borrower from time to time such
subordination agreements as Borrower may request and as are necessary to give
to other lenders which finance equipment for Borrower a first priority security
interest in the equipment financed so long as the Liens and the indebtedness
incurred with respect to such equipment financing are permitted under this
Agreement. Notwithstanding termination of this Agreement, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
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4.2 Delivery of Additional Documentation Required
Borrower shall from time to time execute and deliver to Bank, at
the request of Bank, all Negotiable Collateral, all financing statements and
other documents that Bank may reasonably request, in form satisfactory to Bank,
to perfect and continue perfected Bank's security interests in the Collateral
and in order to fully consummate all of the transactions contemplated under the
Loan Documents.
4.3 Right to Inspect.
Bank (through any of it officers, employees, or agents) shall
have the right, upon reasonable prior notice, from time to time during
Borrower's usual business hours, to inspect Borrower's Books and to make copies
thereof and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, condition of, or any other matter
relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification.
Borrower and each Subsidiary is a corporation duly existing and
in good standing under the laws of its state of incorporation and qualified and
licensed to do business in, and is in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be so
qualified, except for states as to which any failure to so qualify would not
have a Material Adverse Effect.
5.2 Due Authorization: No Conflict.
The execution, delivery, and performance of the Loan Documents
are within Borrower's powers, have been duly authorized, and are not in
conflict with nor constitute a breach of any provision contained in Borrower's
Articles/Certificate of Incorporation or Bylaws, nor will they constitute an
event of default under any material agreement to which Borrower is a party or
by which Borrower is bound. Borrower is not in default under any agreement to
which it is a party or by which it is bound, which default could reasonably be
expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances.
Borrower has good and indefeasible title to the Collateral, free
and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts.
The Eligible Accounts are bona fide existing obligations. The
service or property giving rise to such Eligible Accounts has been performed or
delivered to the account debtor or to the account debtor's agent for immediate
shipment to and unconditional acceptance by the account debtor. Borrower has not
received notice of actual or imminent Insolvency Proceeding of any account
debtor whose accounts are included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory.
All inventory is in all material respects of good and marketable
quality, free from all material defects
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5.6 Intellectual Property.
Borrower is the sole owner of the Intellectual Property Collateral,
except for nonexclusive licenses granted by Borrower to its customers in the
ordinary course of business. Each of the Patents is valid and enforceable, and
no part of the Intellectual Property Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property Collateral violates the rights of any third party.
5.7 Name; Location of Chief Executive Office.
Except as disclosed in the Schedule, Borrower has not done business
and will not without at least thirty (30) days prior written notice to Bank, do
business under any name other than that specified on the signature page hereof.
The chief executive office of Borrower is located at the address indicated in
Section 10 hereof.
5.8 Litigation.
Except as set forth in the Schedule, there are no actions or
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which
an adverse decision could reasonably be expected to have a Material Adverse
Effect or a material adverse effect on Borrower's interest or Bank's security
Interest in the Collateral.
5.9 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and any
Subsidiary that have been delivered by Borrower to Bank fairly present in all
material respects Borrower's consolidated financial condition as of the date
thereof and Borrower's consolidated results of operations for the period then
ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank on or about the Closing Date.
5.10 Solvency.
The fair saleable value of Borrower's assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts
(including trade debts) as they mature.
5.11 Regulatory Compliance.
Borrower and each Subsidiary has met the minimum funding requirements
of ERISA with respect to any employee benefit plans subject to ERISA. No event
has occurred resulting from Borrower's failure to comply with ERISA that is
reasonably likely to result in Borrower's incurring any liability that could
reasonably be expected to have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation G, T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied with all the provisions of the
Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.12 Environmental Condition.
None of Borrower's or any Subsidiary's properties or assets has ever
been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous owners or operators, in the
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disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower's knowledge none of Borrower's properties or assets
has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received
a summons, citation, notice, or directive from the Environmental Protection
Agency, or any other federal, state or other governmental agency concerning any
action or omission by Borrower or any Subsidiary resulting in the release or
other disposition of hazardous waste or hazardous substances into the
environment.
5.13 Taxes.
Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith by proper proceedings with adequate reserves
under GAAP.
5.14 Subsidiaries.
Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.15 Government Consents.
Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with and given
all notices to all governmental authorities that are necessary for the continued
operation of Borrower's business as currently conducted except where the failure
got obtain any such consent, approval or authorization, to make any such
declaration or filing, or to be given any such notice could not reasonably be
expected to have a Material Adverse Effect.
5.16 Full Disclosure
No representation, warranty or other statement made by
Borrower in any certificate or written statement furnished to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained in such certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower are not to be viewed as facts and that actual results
during the period or period covered by any such projections and forecasts may
differ from the projected or forecasted results).
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing.
Borrower shall maintain its and each of its Subsidiaries'
corporate existence and good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could reasonably be expected to have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could reasonably be except
to have a Material Adverse Effect.
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6.2 Government Compliance.
Borrower shall meet, and shall cause each Subsidiary to
meet, the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. Borrower shall comply, and shall cause each
Subsidiary to comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, noncompliance with which could
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates.
Borrower shall deliver to Bank: (a) as soon as available,
but in any event within twenty-five (25) days after the end of each month, a
company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during such period, in a form and certified
by an Officer of Borrower reasonably acceptable to Bank; (b) as soon as
available, but in any event within ninety (90) days after the end of Borrower's
fiscal year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (e) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more; and (e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto, together with
aged listings of accounts receivable and accounts payable.
Within twenty-five (25) days after the last day of each
month, Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more often than every six (6) months unless an Event of Default has
occurred and is continuing.
6.4 Inventory; Returns.
Borrower shall keep all inventory in good and marketable
condition, free from all material defects. Returns and allowances, if any, as
between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Fifty Thousand Dollars
($50,000).
6.5 Taxes.
Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request,
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furnish Bank with proof satisfactory to Bank indicating that Borrower or a
Subsidiary has made such payments or deposits; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of such payment
is (i) contested in good faith by appropriate proceedings, (ii) is reserved
against (to the extent required by GAAP) by Borrower and (iii) no lien other
than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
of applying the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property; provided, that after the occurrence and during
the continuance of an Event of Default, all proceeds payable under any such
policy shall, at the option of Bank, be payable to Bank to be applied on account
of the Obligations.
6.7 Principal Depository.
Borrower shall maintain its principal depository and operating
accounts with Bank.
6.8 Quick Ratio.
Borrower shall maintain a ratio of Quick Assets to Current
Liabilities of at least: (i) 1.25 to 1.0 as of the last day of each calendar
month from the date hereof through June 30, 1999; (ii) 1.0 to 1.0 as of the
last day of each calendar month from July 1, 1999 through December 31, 1999;
and (iii) 1.25 to 1.0 as of the last day of each calendar month from and after
January 1, 2000.
6.9 Debt-Net Worth Ratio.
Borrower shall maintain a ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than:
(i) 2.0 to 1.0 as of the last day of each calendar month, from the date hereof
through November 30, 1999; and (ii) 1.0 to 1.0 as of the last day of each
calendar month from and after December 1, 1999.
6.10 Tangible Net Worth.
Borrower shall maintain, as of the last day of each calendar
month, a Tangible Net Worth of not less than Four Million Two Hundred Fifty
Thousand Dollars ($4,250,000) plus (i) 75% of Borrower's quarterly net income
(but not loss) for each fiscal quarter of the Borrower after the date hereof,
plus (ii) 100% of the net proceeds of any issuance by Borrower of its equity
securities or Subordinated Debt after the date hereof.
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6.11 Profitability.
Borrower shall have a minimum net profit of One Dollar
($1) for the fiscal quarter ending December 31, 1999. Commencing with the fiscal
quarter ending March 31, 2000 and thereafter. Borrower shall have a minimum net
profit of One Dollar ($1) for each fiscal quarter, except that Borrower may
suffer a loss not exceeding $250,000 for one fiscal quarter in any fiscal year.
6.12 Debt Service Coverage.
Commencing with the fiscal quarter ending December 31,
1999, Borrower shall maintain as of the last day of each of Borrower's fiscal
quarters, a Debt Service Coverage of at least 1.50 to 1.0.
6.13 Further Assurances.
At any time and from time to time Borrower shall execute
and deliver such further instruments and take such further actin as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit
Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following:
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of
(collectively a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business, (iii) Transfers of worn-out or obsolete Equipment
or Equipment financed by other vendors, (iv) Transfers which constitute
liquidation of Investments permitted under Section 7.7, and (v) other Transfers
not otherwise permitted by this Section 7.1 not exceeding One Hundred Thousand
Dollars ($100,000) in the aggregate in any fiscal year.
7.2 Changes in Business, Ownership, Management or Business
Locations.
Engage in any business or permit any of its Subsidiaries
to engage in any business, other than the businesses currently engaged in by
Borrower and any business substantially similar or related thereto (or
incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without at least thirty (30) days prior written notification
to Bank, relocate its chief executive office or add any new offices or business
locations.
7.3 Mergers or Acquisitions.
Without prior consent of Bank which will not unreasonably
withheld, merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with or into any other business organization, or acquire, or permit
any of its Subsidiaries to acquire, all or substantially all of the capital
stock or property of another Person.
7.4 Indebtedness.
Create, incur, assume or be or remain liable with respect
to any indebtedness, or permit any Subsidiary so to do, other than Permitted
indebtedness.
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7.5 Encumbrances.
Create, incur, assume or suffer to exist any Lien with
respect to any of its property (including intellectual property), or assign or
otherwise convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries so to do, except for Permitted
Liens.
7.6 Distributions.
Pay any dividends or make any other distribution or payment
on account of or in redemption, retirement or purchase of any capital stock,
provided that (i) Borrower may declare and make any dividend payment or other
distribution payable in its equity securities (ii) Borrower may convert any of
its convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange therefor and (iii) for so long
as an Event of Default has not occurred, Borrower may repurchase stock from
former employees of Borrower in accordance with the terms of repurchase or
similar agreements between Borrower and such employees.
7.7 Investments.
Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates.
Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for transactions that
are in the ordinary course of Borrower's business, upon fair and reasonable
terms that are no less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person and except for transactions
with a Subsidiary that are upon fair and reasonable terms and transactions
constituting Permitted Investments.
7.9 Intellectual Property Agreements.
Borrower shall not permit the inclusion in any material
contract to which it becomes a party of any provisions that could or might in
any way prevent the creation of a security interest in Borrower's rights and
interests in any property included within the definition of the Intellectual
Property Collateral acquired under such contracts.
7.10 Subordinated Debt.
Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Bank's prior written
consent.
7.11 Inventory.
Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrower shall
keep the Inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest.
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7.12 Compliance.
Become an "investment company" or a company controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default.
If Borrower fails to pay, when due, any of the Obligations;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, or 6.13 or violates any of
the covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Credit
Extensions will be required to be made during such cure period);
8.3 Material Adverse Change.
If there (i) occurs a material adverse change in the
business, operations, or condition (financial or otherwise) of Borrower or (ii)
is a material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority of Bank's
security interests in the Collateral;
8.4 Attachment.
If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgement or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of
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<PAGE> 23
Default where such action or event is stayed or an adequate bond has been posted
pending a good faith contest by Borrower (provided that no Credit Extensions
will be required to be made during such cure period);
8.5 Insolvency.
If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements.
If there is a default in any agreement to which Borrower
is a party with a third party or parties resulting in a right by such third
party or parties, whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000)
or that could reasonably be expect to have a Material Adverse Effect;
8.7 Subordinated Debt.
If Borrower makes any payment on account of Subordinated
Debt, except to the extent such payment is allowed under any subordination
agreement entered into with Bank;
8.8 Judgments.
If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations.
If any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth herein or in
any certificate or writing delivered to Bank by Borrower or any Person acting on
Borrower's behalf pursuant to this Agreement or to induce Bank to enter into
this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies.
Upon the occurrence and during the continuance of an Event
of Default, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower.
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
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(c) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letters of Credit fees scheduled to be paid or payable over the
remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior
to its security interest and to pay all expenses incurred in connection
therewith. With respect to any of Borrower's premises, Borrower hereby grants
Bank a license to enter such premises and to occupy the same, without charge,
in order to exercise any of Bank's rights or remedies provided herein, at law,
in equity, or otherwise;
(f) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral;
(h) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order Bank deems appropriate;
(i) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
(k) Bank shall have a non-exclusive, royalty-free license to use
the Intellectual Property Collateral to the extent reasonably necessary to
permit Bank to exercise its rights and remedies upon the occurrence of an Event
of Default.
9.2 Power of Attorney
Effective only upon the occurrence and during the continuance of
an Event of Default, Borrower hereby irrevocably appoints Bank (and any of
Bank's designated officers, or employees) as Borrower's true and lawful
attorney to: (a) send requests for verification of Accounts or notify account
debtors of Bank's security interest in the Accounts; (b) endorse Borrower's
name on any checks or other forms of payment or security that may come into
Bank's possession; (c) sign Borrower's name on any invoice or bill of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; (e) settle and adjust disputes and
claims respecting the accounts directly with account debtors, for amounts and
upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral, without the signature of Borrower
where permitted by law; and (g) to transfer the Intellectual Property
Collateral into the name of Bank
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or a third party to the extent permitted under the California Uniform Commercial
Code, provided Bank may exercise such power of attorney to sign the name of
Borrower on any of the documents described in Section 4.2 regardless of whether
an Event of Default has occurred. The appointment of Bank as Borrower's attorney
in fact, and each and every one of Bank's rights and powers, being coupled with
an interest, is irrevocable until all of the Obligations have been fully repaid
and performed and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection.
At any time from the date of this Agreement, Bank may notify
any Person owing funds to Borrower of Bank's security interest in such funds and
verify the amount of such Account. Borrower shall collect all amounts owing to
Borrower for Bank, receive in trust all payments as Bank's trustee, and, if
requested or required by Bank, immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses.
If Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the terms
of this Agreement, then Bank may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral.
So long as Bank complies with its obligations under Section
9207 of the Code, Bank shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever. All risk of loss, damage
or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Bank shall have all
other rights and remedies not expressly set forth herein as provided under the
Code, by law, or in equity. No exercise by Bank of one right or remedy shall be
deemed an election, and no waiver by Bank of any Event of Default on Borrower's
part shall be deemed a continuing waiver. No delay by Bank shall constitute a
waiver, election, or acquiescence by it. No waiver by Bank shall be effective
unless made in a written document signed on behalf of Bank and then shall be
effective only in the specific instance and for the specific purpose for which
it was given.
9.7 Demand; Protest.
Borrower waives demand, protest, notice of protest, notice
of default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Bank on which Borrower may in any way be liable.
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10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: VA Research, Inc.
1235 Pear Ave. Suite 109
Mountain View, CA 94043
Attn: Jack Anderson
FAX:
----------------------------
If to Bank: Comerica Bank-California
55 Almaden Blvd., 2nd Floor
San Jose, CA 95113
Attn: Alan M. Jepsen
FAX: (408) 271-4021
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns.
(a) This Agreement shall bind and inure to the benefit of the
respective successors and permitted assigns of each of the parties; provided,
however, that neither this Agreement nor any rights hereunder may be assigned by
Borrower without Bank's prior written consent, which consent may be granted or
withheld in Bank's sole discretion. Bank shall have the right without the
consent of or notice to Borrower to sell, transfer, negotiate, or grant
participations in all or any part of, or any interest in, Bank's obligations,
rights, and benefits hereunder, subject to the provisions of this Section 12.1.
(b) Bank may sell, negotiate or grant participations to other
financial institutions in all or part of the obligations of the Borrower
outstanding under the Loan Documents, without notice to or the approval of
Borrower; provided that any such sale, negotiation or participation shall be in
compliance with the applicable federal and state securities laws and the other
requirements of this Section 12.1. Notwithstanding the
25
<PAGE> 27
sale, negotiation or grant of participations. Bank shall remain solely
responsible for the performance of its obligations under this Agreement, and
Borrower shall continue to deal solely and directly with Bank in connection with
this Agreement and the other Loan Documents.
(c) The grant of a participation interest shall be on such
terms as Bank determines are appropriate, provided only that (1) the holder of
such a participation interest shall not have any of the rights of Bank under
this Agreement except, if the participation agreement so provides, rights to
demand the payment of costs of the type described in Section 2.6, provided that
the aggregate amount that the Borrower shall be required to pay under Section
2.6 with respect to any ratable share of the Committed Revolving Line or any
Advance (including amounts paid to participants) shall not exceed the amount
that Borrower would have had to pay if no participation agreements had been
entered into, and (2) the consent of the holder of such a participation interest
shall not be required for amendments or waivers of provisions of the Loan
Agreement other than those which (i) increase the amount of the Committed
Revolving Line, (ii) extend the term of this Agreement, (iii) decrease the rate
of interest or the amount of any fee or any other amount payable to Bank under
this Agreement, (iv) reduce the principal amount payable under this Agreement,
or (v) extend the date fixed for the payment of principal or interest or any
other amount payable under this Agreement.
(d) Bank may assign, from time to time, all or any portion of
the Committed Revolving Line to an Affiliate of Bank or to The Federal Reserve
Bank or, subject to the prior written approval of Borrower (which approval will
not be unreasonably withheld), to any other financial institution; provided
that (i) the amount of the Committed Revolving Line being assigned pursuant to
each such assignment shall in no event be less than Five Hundred Thousand
Dollars ($500,000) and shall be an integral multiple of One Hundred Thousand
Dollars ($100,000) and (ii) the parties to each such assignment shall execute
and deliver to Borrower an assignment agreement in a form reasonably acceptable
to each. Upon such execution and delivery, from and after the effective date
specified in such assignment agreement (x) the assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such assignment agreement have the rights and
obligations of a Bank hereunder and (y) Bank shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such assignment
agreement, relinquish its rights and be released from its obligations under this
Agreement (other than pursuant to this Section 12.1(d)), and, in the case of an
assignment covering all or the remaining portion of Bank's rights and
obligations under this Agreement. Bank shall cease to be a party hereto. In the
event of an assignment hereunder, the parties agree to amend this Agreement to
the extent necessary to reflect the mechanical changes which are necessary to
document such assignment. Each party shall bear its own expenses (including
without limitation attorneys' fees and costs) with respect to such an amendment.
12.2 Indemnification.
Borrower shall indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence.
Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions.
Each provision of this Agreement Shall be severable from
every other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
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12.5 Amendments in Writing, Integration.
This Agreement cannot be amended or terminated except by a
writing signed by Borrower and Bank. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts.
This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.
12.7 Survival.
All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
(excluding Obligations under Section 2.6 and 12.2 to the extent they remain
inchoate at the time the outstanding payment Obligations are paid in full)
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run, provided that so
long as the obligations referred to in the first sentence of this Section 12.7
have been satisfied, and Bank has no commitment to make any Credit Extensions or
to make any other loans to Borrower, Bank shall release all security interests
granted hereunder and redeliver all Collateral held by it in accordance with
applicable law.
12.8 Confidentiality.
In handling any confidential information, Bank shall exercise
the same degree of care that it exercises with respect to its own proprietary
information of the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement, except that
disclosure of such information may be made (i) to the subsidiaries or affiliates
of Bank in connection with their present or prospective business relations with
Borrower, (ii) to prospective transferees or purchasers of any interest in the
Loans, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order, (iv) as may be required in connection with the examination, audit or
similar investigation of Bank and (v) as Bank may deem appropriate in connection
with the exercise of any remedies hereunder. Confidential information hereunder
shall not include information that either: (a) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information.
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
VA RESEARCH, INC.
By: [ILLEGIBLE]
-------------------------
Title: CFO
----------------------
COMERICA BANK - CALIFORNIA
By: ALAN JASPER
-------------------------
Title: VICE PRESIDENT
----------------------
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION................................... 1
1.1 Definitions............................................. 1
1.2 Accounting and Other Terms.............................. 8
2. LOAN AND TERMS OF PAYMENT...................................... 9
2.1 Credit Extensions....................................... 9
2.2 Overadvances............................................ 11
2.3 Interest Rates, Payments, and Calculations.............. 11
2.4 Crediting Payments...................................... 11
2.5 Fees.................................................... 11
2.6 Additional Costs........................................ 12
2.7 Term................................................... 12
3. CONDITIONS OF LOANS........................................... 12
3.1 Conditions Precedent to Initial Credit Extension....... 12
3.2 Conditions Precedent to all Credit Extensions.......... 13
4. CREATION OF SECURITY INTEREST................................. 13
4.1 Grant of Security Interest............................. 13
4.2 Delivery of Additional Documentation Required.......... 14
4.3 Right to Inspect....................................... 14
5. REPRESENTATIONS AND WARRANTIES................................ 14
5.1 Due Organization and Qualification..................... 14
5.2 Due Authorization; No Conflict......................... 14
5.3 No Prior Encumbrances.................................. 14
5.4 Bona Fide Eligible Accounts............................ 14
5.5 Merchantable Inventory................................. 14
5.6 Intellectual Property.................................. 15
5.7 Name; Location of Chief Executive Office............... 15
5.8 Litigation............................................. 15
5.9 No Material Adverse Change in Financial Statements..... 15
5.10 Solvency............................................... 15
5.11 Regulatory Compliance.................................. 15
5.12 Environmental Condition................................ 15
5.13 Taxes.................................................. 16
5.14 Subsidiaries........................................... 16
5.15 Government Consents.................................... 16
5.16 Full Disclosure........................................ 16
6. AFFIRMATION COVENANTS......................................... 16
6.1 Good Standing.......................................... 16
6.2 Government Compliance.................................. 17
6.3 Financial Statements, Reports, Certificates............ 17
6.4 Inventory; Returns..................................... 17
6.5 Taxes.................................................. 17
6.6 Insurance.............................................. 18
6.7 Principal Depository................................... 18
6.8 Quick Ratio............................................ 18
</TABLE>
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TABLE OF CONTENTS
CONTINUED
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.9 Debt-Net Worth Ratio............................................... 18
6.10 Tangible Net Worth................................................. 18
6.11 Profitability...................................................... 19
6.12 Debt Service Coverage.............................................. 19
6.13 Further Assurances................................................. 19
7. NEGATIVE COVENANTS........................................................ 19
7.1 Dispositions....................................................... 19
7.2 Changes in Business, Ownership, Management or Business Locations... 19
7.3 Mergers or Acquisitions............................................ 19
7.4 Indebtedness....................................................... 19
7.5 Encumbrances....................................................... 20
7.6 Distributions...................................................... 20
7.7 Investments........................................................ 20
7.8 Transactions with Affiliates....................................... 20
7.9 Intellectual Property Agreements................................... 20
7.10 Subordinated Debt.................................................. 20
7.11 Inventory.......................................................... 20
7.12 Compliance......................................................... 20
8. EVENTS OF DEFAULT......................................................... 21
8.1 Payment Default.................................................... 21
8.2 Covenant Default................................................... 21
8.3 Material Adverse Change............................................ 21
8.4 Attachment......................................................... 21
8.5 Insolvency......................................................... 22
8.6 Other Agreements................................................... 22
8.7 Subordinated Debt.................................................. 22
8.8 Judgments.......................................................... 22
8.9 Misrepresentations................................................. 22
9. BANK'S RIGHTS AND REMEDIES................................................ 22
9.1 Rights and Remedies................................................ 22
9.2 Power of Attorney.................................................. 23
9.3 Accounts Collection................................................ 24
9.4 Bank Expenses...................................................... 24
9.5 Bank's Liability for Collateral.................................... 24
9.6 Remedies Cumulative................................................ 24
9.7 Demand; Protest.................................................... 24
10. NOTICES................................................................... 25
11. CHOICE OF LAW AND VENUE................................................... 25
12. GENERAL PROVISIONS........................................................ 25
12.1 Successors and Assigns............................................. 25
12.2 Indemnification.................................................... 26
12.3 Time of Essence.................................................... 26
12.4 Severability of Provisions......................................... 26
12.5 Amendments in Writing, Integration................................. 27
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
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<S> <C>
12.6 Counterparts....................................................... 27
12.7 Survival........................................................... 27
12.8 Confidentiality.................................................... 27
</TABLE>
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