Exhibit 10.1
SILICON VALLEY BANK SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement") dated as of October 12, 2006, between SILICON VALLEY BANK, a
California chartered bank, with its principal place of business at ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (FAX (▇▇▇) ▇▇▇-▇▇▇▇) ("Bank") and
GlobalOptions, Inc., a Delaware corporation, with offices at ▇▇▇▇ ▇ ▇▇., ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (FAX ▇▇▇.▇▇▇.▇▇▇▇ )("Borrower"), provides the terms on
which Bank shall lend to Borrower and Borrower shall repay Bank. This Agreement
amends and restates that certain Amended and Restated Loan and Security
Agreement, dated February 3, 2006, as amended from time to time, in its
entirety. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. Capitalized terms in this Agreement
shall have the meanings set forth in Section 13. All other terms contained in
this Agreement, unless otherwise indicated, shall have the meanings provided by
the Code, to the extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 PROMISE TO PAY. Borrower hereby unconditionally promises to pay
Bank the unpaid principal amount of all Advances hereunder with all interest,
fees and finance charges due thereon as and when due in accordance with this
Agreement.
2.1.1 FINANCING OF ACCOUNTS.
(a) AVAILABILITY. Subject to the terms of this Agreement,
Borrower may request that Bank finance specific Eligible Accounts. Bank may, in
its good faith business discretion, finance such Eligible Accounts by extending
credit to Borrower in an amount equal to the result of the Advance Rate
multiplied by the face amount of the Eligible Account (the "Advance"). Bank may,
in its sole discretion, change the percentage of the Advance Rate for a
particular Eligible Account on a case by case basis. When Bank makes an Advance,
the Eligible Account becomes a "Financed Receivable."
(b) MAXIMUM ADVANCES. The aggregate face amount of all
Financed Receivables outstanding at any time may not exceed the Facility Amount
minus the face amount of all outstanding Letters of Credit.
(c) BORROWING PROCEDURE. When Borrower's Net Cash Balance is
less than $5,000,000, Borrower will deliver an Invoice Transmittal for each
Eligible Account it offers. When Borrower's Net Cash Balance is equal to or
greater than $5,000,000, Borrower may deliver, in lieu of Invoice Transmittals,
on a monthly basis, no later than five (5) days following the end of each month
when Advances are outstanding (or immediately prior to an Advance if no Advances
are then-outstanding), a summary of Eligible Accounts in form and substance
acceptable to Bank in all respects (the "Eligible Accounts Summary"). Bank may
rely on information set forth in or provided with the Invoice Transmittal or
Eligible Accounts Summary, as the case may be.
(d) CREDIT QUALITY; CONFIRMATIONS. Bank may, at its option,
conduct a credit check of the Account Debtor for each Account requested by
Borrower for financing hereunder in order to approve any such Account Debtor's
credit before agreeing to finance such Account. Bank may also verify directly
with the respective Account Debtors the validity, amount and other matters
relating to the Accounts (including confirmations of Borrower's representations
in Section 5.3) by means of mail, telephone or otherwise, either in the name of
Borrower or Bank from time to time in its sole discretion.
(e) ACCOUNTS NOTIFICATION/COLLECTION. Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
and/or collect the amount of the Account.
(f) MATURITY. This Agreement shall terminate and all
Obligations outstanding hereunder shall be immediately due and payable on the
Maturity Date.
(g) SUSPENSION OF ADVANCES. Borrower's ability to request that
Bank finance Eligible Accounts hereunder will terminate if, in Bank's sole
discretion, there has been a material adverse change in the general affairs,
management, results of operation, condition (financial or otherwise) or the
prospect of repayment of the Obligations, or there has been any material adverse
deviation by Borrower from the most recent business plan of Borrower presented
to and accepted by Bank prior to the execution of this Agreement.
2.1.2 LETTERS OF CREDIT SUBLIMIT.
(a) As part of the Facility Amount, so long as Borrower's Net
Cash Balance is equal to or greater than $5,000,000, Bank shall issue or have
issued Letters of Credit for Borrower's account. The face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) may not exceed $2,000,000. Such aggregate amounts
utilized hereunder shall at all times reduce the amount otherwise available for
Advances under the Facility Amount. If, on (a) any date when Borrower's Net Cash
Balance is less than $5,000,000 or (b) the Maturity Date, there are any
outstanding Letters of Credit, then on such date Borrower shall provide to Bank
cash collateral in an amount equal to 100% of the face amount of all such
Letters of Credit plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business judgment),
to secure all of the Obligations relating to said Letters of Credit. 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 standard
Application and Letter of Credit Agreement (the "Letter of Credit Application").
Borrower agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request. Borrower further agrees to be
bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Bank and opened for Borrower's account or by Bank's
interpretations of any Letter of Credit issued by Bank for Borrower's account,
and Borrower understands and agrees that Bank shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrower's instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto.
(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, such Letters of Credit, and the Letter of Credit Application.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a Foreign Currency. 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 fees and charges in connection therewith
such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing
rate of exchange in San Francisco, California, for sales of the Foreign Currency
for transfer to the country issuing such Foreign Currency.
(d) To guard against fluctuations in currency exchange rates,
upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank
shall create a reserve (the "Letter of Credit Reserve") under the Revolving Line
in an amount equal to ten percent (10%) of the face amount of such Letter of
Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from
time to time to account for fluctuations in the exchange rate. The availability
of funds under the Revolving Line shall be reduced by the amount of such Letter
of Credit Reserve for as long as such Letter of Credit remains outstanding.
2.1.3 OVERADVANCES. If, at any time, the Credit Extensions
under Sections 2.1.1 and 2.1.2 exceed the Facility Amount, Borrower shall
immediately pay to Bank in cash such excess.
2.2 COLLECTIONS, FINANCE CHARGES, REMITTANCES AND FEES. The Obligations
shall be subject to the following fees and Finance Charges. Unpaid fees and
Finance Charges may, in Bank's discretion, accrue interest and fees as described
in Section 9.2 hereof.
2.2.1 COLLECTIONS. Collections will be credited to the Financed
Receivable Balance for such Financed Receivable, but if there is an Event of
Default, Bank may apply Collections to the Obligations in any order it chooses.
If Bank receives a payment for both a Financed Receivable and a non-Financed
Receivable, the funds will first be applied to the Financed Receivable and, if
there is no Event of Default then existing, the excess will be remitted to
Borrower, subject to Section 2.2.7.
2.2.2 FACILITY FEE. A fully earned, non-refundable facility fee of
Twenty Five Thousand Dollars ($25,000) is due upon execution of this Agreement.
Bank will credit Borrower $3,880.49, on the Closing Date which reflects a
pro-ration of the $12,500 renewal fee paid by Borrower to Bank in February 2006.
2.2.3 FINANCE CHARGES. In computing Finance Charges on the Obligations
under this Agreement, all Collections received by Bank shall be deemed applied
by Bank on account of the Obligations three (3) Business Days after receipt of
the Collections. Borrower will pay a finance charge (the "Finance Charge") on
each Financed Receivable which is equal to the Applicable Rate DIVIDED BY 360
MULTIPLIED BY the number of days each such Financed Receivable is outstanding
MULTIPLIED BY the outstanding Financed Receivable Balance for such Financed
Receivable. The Finance Charge is payable when the Advance made based on such
Financed Receivable is payable in accordance with Section 2.3 hereof. In the
event that the aggregate amount of Finance Charges earned by Bank in any
Reconciliation Period is less than the Minimum Finance Charge, Borrower shall
pay to Bank an additional Finance Charge equal to (i) the Minimum Finance Charge
minus (ii) the aggregate amount of all Finance Charges earned by Bank in such
Reconciliation Period. Such additional Finance Charge shall be payable on the
first day of next Reconciliation Period.
2.2.4 COLLATERAL HANDLING FEE. Borrower will pay to Bank a collateral
handling fee equal to (a) when Borrower's Net Cash Balance is less than or equal
to $2,000,000, 0.50% per month and (b) when Borrower's Net Cash Balance is
greater than $2,000,000 but less than or equal to $5,000,000, 0.10% per month,
in each case, of the Financed Receivable Balance for each Financed Receivable
outstanding based upon a 360 day year (the "Collateral Handling Fee"). There
will be no Collateral Handling Fee if Borrower' Net Cash Balance is greater than
$5,000,000. The Collateral Handling Fee is payable when the Advance made based
on such Financed Receivable is payable in accordance with Section 2.3 hereof. In
Computing Collateral Handling Fees under this agreement, all Collections
received by Bank shall be deemed applied by Bank on account of Obligations three
(3) Business Days after receipt of the Collections. After an Event of Default,
the Collateral Handling Fee will increase an additional 0.50% effective
immediately upon such Event of Default.
2.2.5 ACCOUNTING. After each Reconciliation Period, Bank will provide
an accounting of the transactions for that Reconciliation Period, including the
amount of all Financed Receivables, all Collections, Adjustments, Finance
Charges, Collateral Handling and the Facility Fee. If Borrower does not object
to the accounting in writing within thirty (30) days it shall be considered
accurate. All Finance Charges and other interest and fees are calculated on the
basis of a 360 day year and actual days elapsed.
2.2.6 DEDUCTIONS. Bank may deduct fees, Finance Charges, Advances which
become due pursuant to Section 2.3, and other amounts due pursuant to this
Agreement from any Advances made or Collections received by Bank.
2.2.7 LOCKBOX; ACCOUNT COLLECTION SERVICES. As and when directed by
Bank from time to time, at Bank's option and at the sole and exclusive
discretion of Bank (regardless of whether an Event of Default has occurred),
Borrower shall direct each Account Debtor (and each depository institution where
proceeds of Accounts are on deposit) to remit payments with respect to the
Accounts to a lockbox account established with Bank or to wire transfer payments
to a cash collateral account that Bank controls (collectively, the "Lockbox").
It will be considered an immediate Event of Default if the Lockbox is not set-up
and operational within forty-five (45) days from the date of such direction by
Bank. Until such Lockbox is established, the proceeds of the Accounts shall be
paid by the Account Debtors to an address consented to by Bank. Upon receipt by
Borrower of such proceeds, the Borrower shall immediately transfer and deliver
same to Bank, along with a detailed cash receipts journal. Provided no Event of
Default exists or an event that with notice or lapse of time will be an Event of
Default, within three (3) days of receipt of such amounts by Bank, Bank will
turn over to Borrower the proceeds of the Accounts other than Collections with
respect to Financed Receivables and the amount of Collections in excess of the
amounts for which Bank has made an Advance to Borrower, less any amounts due to
Bank, such as the Finance Charge, the Facility Fee, payments due to Bank, other
fees and expenses, or otherwise; provided, however, Bank may hold such excess
amount with respect to Financed Receivables as a reserve until the end of the
applicable Reconciliation Period if Bank, in its discretion, determines that
other Financed Receivable(s) may no longer qualify as an Eligible Account at any
time prior to the end of the subject Reconciliation Period. This Section does
not impose any affirmative duty on Bank to perform any act other than as
specifically set forth herein. All Accounts and the proceeds thereof are
Collateral and if an Event of Default occurs, Bank may apply the proceeds of
such Accounts to the Obligations.
2.3 REPAYMENT OF OBLIGATIONS; ADJUSTMENTS.
2.3.1 REPAYMENT. Borrower will repay each Advance on the earliest of:
(a) the date on which payment is received of the Financed Receivable with
respect to which the Advance was made, (b) the date on which the Financed
Receivable is no longer an Eligible Account, (c) the date on which any
Adjustment is asserted to the Financed Receivable (but only to the extent of the
Adjustment if the Financed Receivable remains otherwise an Eligible Account),
(d) the date on which there is a breach of any warranty or representation set
forth in Section 5.3 or a breach of any covenant in this Agreement, or (e) the
Maturity Date (including any early termination). Each payment will also include
all accrued Finance Charges and Collateral Handling Fees with respect to such
Advance and all other amounts then due and payable hereunder.
2.3.2 REPAYMENT ON EVENT OF DEFAULT. When there is an Event of Default,
Borrower will, if Bank demands (or, upon the occurrence of an Event of Default
under Section 8.5, immediately without notice or demand from Bank) repay all of
the Advances. The demand may, at Bank's option, include the Advance for each
Financed Receivable then outstanding and all accrued Finance Charges, Collateral
Handling Fee, attorneys and professional fees, court costs and expenses, and any
other Obligations.
2.3.3 DEBIT OF ACCOUNTS. Bank may debit any of Borrower's deposit
accounts for payments or any amounts Borrower owes Bank hereunder. Bank shall
promptly notify Borrower when it debits Borrower's accounts. These debits shall
not constitute a set-off.
2.3.4 ADJUSTMENTS. If at any time during the term of this Agreement any
Account Debtor asserts an Adjustment or if Borrower issues a credit memorandum
or if any of the representations, warranties or covenants set forth in Section
5.3 are not longer true in all material respects, Borrower will promptly advise
Bank.
2.4 POWER OF ATTORNEY. Borrower irrevocably appoints Bank and its
successors and assigns as attorney-in-fact and authorizes Bank, to: (i)
following the occurrence of an Event of Default, sell, assign, transfer, pledge,
compromise, or discharge all or any part of the Financed Receivables; (ii)
following the occurrence of an Event of Default, demand, collect, ▇▇▇, and give
releases to any Account Debtor for monies due and compromise, prosecute, or
defend any action, claim, case or proceeding about the Financed Receivables,
including filing a claim or voting a claim in any bankruptcy case in Bank's or
Borrower's name, as Bank chooses; (iii) following the occurrence of an Event of
Default, prepare, file and sign Borrower's name on any notice, claim,
assignment, demand, draft, or notice of or satisfaction of lien or mechanics'
lien or similar document; (iv) regardless of whether there has been an Event of
Default, notify all Account Debtors to pay Bank directly; (v) regardless of
whether there has been an Event of Default, receive, open, and dispose of mail
addressed to Borrower; (vi) regardless of whether there has been an Event of
Default, endorse Borrower's name on checks or other instruments (to the extent
necessary to pay amounts owed pursuant to this Agreement); and (vii) regardless
of whether there has been an Event of Default, execute on Borrower's behalf any
instruments, documents, financing statements to perfect Bank's security
interests in the Financed Receivables and Collateral and do all things necessary
or expedient, as determined solely and exclusively by Bank, to protect or
preserve, Bank's rights and remedies under this Agreement, as directed by Bank.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. Bank's agreement to make
the initial Advance is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, such documents, and
completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation, subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) Borrower shall have delivered duly executed original
signatures to the Loan Documents to which it is a party;
(b) Borrower shall have delivered good standing certificates
of Borrower in Delaware and Washington DC, certified by the respective issuing
bodies in each jurisdiction, each as of a date no earlier than thirty (30) days
prior to the date of this Agreement;
(c) Guarantor shall have delivered duly executed original
signature to the Reaffirmation of Guaranty by Guarantor in favor of Bank, of
even date herewith;
(d) Borrower shall have delivered duly executed original
signatures to the IP Agreement;
(e) Borrower shall have delivered an updated Perfection
Certificate executed by Borrower; and
(f) Borrower shall have paid the fees and Bank Expenses then
due.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. Bank's agreement to make each
Advance, including the initial Advance, is subject to the following:
(a) receipt of the Invoice Transmittal or receipt of the
Eligible Accounts Summary last due, by its due date, as applicable;
(b) Bank shall have (at its option) conducted the
confirmations and verifications as described in Section 2.1.1(d); and
(c) each of the representations and warranties in Section 5
shall be true on the date of the Invoice Transmittal or Eligible Accounts
Summary, as applicable and on the effective date of each Advance and no Event of
Default shall have occurred and be continuing, or result from the Advance. Each
Advance is Borrower's representation and warranty on that date that the
representations and warranties in Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants Bank, to secure
the payment and performance in full of all of the Obligations and the
performance of each of Borrower's duties under the Loan Documents, a continuing
security interest in, and pledges and assigns to Bank, the Collateral, wherever
located, whether now owned or hereafter acquired or arising, and all proceeds
and products thereof. Borrower warrants and represents that the security
interest granted herein shall be a first priority security interest in the
Collateral.
Except as noted on the Perfection Certificate, Borrower is not a party
to, nor is bound by, any material license or other agreement with respect to
which Borrower is the licensee that prohibits or otherwise restricts Borrower
from granting a security interest in Borrower's interest in such license or
agreement or any other property. Without prior consent from Bank, Borrower shall
not enter into, or become bound by, any such license or agreement which is
reasonably likely to have a material impact on Borrower's business or financial
condition. Borrower shall take such steps as Bank requests to obtain the consent
of, or waiver by, any person whose consent or waiver is necessary for all such
licenses or contract rights to be deemed "Collateral" and for Bank to have a
security interest in it that might otherwise be restricted or prohibited by law
or by the terms of any such license or agreement, whether now existing or
entered into in the future.
If the Agreement is terminated, Bank's lien and security interest in
the Collateral shall continue until Borrower fully satisfies its Obligations. If
Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Bank.
4.2 AUTHORIZATION TO FILE FINANCING STATEMENTS. Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions in order to perfect or protect Bank's interest or
rights hereunder, which financing statements may indicate the Collateral as "all
assets of the Debtor" or words of similar effect, or as being of an equal or
lesser scope, or with greater detail, all in Bank's discretion.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION. Borrower and each Subsidiary is
duly existing and in good standing in its state of formation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected to
cause a Material Adverse Change. Borrower represents and warrants to Bank that:
(a) Borrower's exact legal name is that indicated on the Perfection Certificate
and on the signature page hereof; and (b) Borrower is an organization of the
type, and is organized in the jurisdiction, set forth in the Perfection
Certificate; and (c) the Perfection Certificate accurately sets forth Borrower's
organizational identification number or accurately states that Borrower has
none; and (d) the Perfection Certificate accurately sets forth Borrower's place
of business, or, if more than one, its chief executive office as well as
Borrower's mailing address if different, and (e) all other information set forth
on the Perfection Certificate pertaining to Borrower is accurate and complete.
If Borrower does not now have an organizational identification number, but later
obtains one, Borrower shall forthwith notify Bank of such organizational
identification number.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's organizational documents,
nor constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which or by
which it is bound in which the default could reasonably be expected to cause a
Material Adverse Change.
5.2 COLLATERAL. Borrower has good title to the Collateral, free of
Liens except Permitted Liens. All inventory is in all material respects of good
and marketable quality, free from material defects. Borrower has no deposit
account, other than the deposit accounts with Bank and deposit accounts
described in the Perfection Certificate delivered to Bank in connection
herewith. The Collateral is not in the possession of any third party bailee
(such as a warehouse). Except as hereafter disclosed to Bank in writing by
Borrower, none of the components of the Collateral shall be maintained at
locations other than as provided in the Perfection Certificate. In the event
that Borrower, after the date hereof, intends to store or otherwise deliver any
portion of the Collateral to a bailee, then Borrower will first receive the
written consent of Bank and such bailee must acknowledge in writing that the
bailee is holding such Collateral for the benefit of Bank.
5.3 FINANCED RECEIVABLES. Borrower represents and warrants for each
Financed Receivable:
(a) Each Financed Receivable is an Eligible Account.
(b) Borrower is the owner with legal right to sell, transfer,
assign and encumber such Financed Receivable;
(c) The correct amount is on the Invoice Transmittal or
Eligible Accounts Summary, as applicable, and is not disputed;
(d) Payment is not contingent on any obligation or contract
and Borrower has fulfilled all its obligations as of the Invoice Transmittal
date or date the Eligible Account is submitted for financing (when no Invoice
Transmittal is due), as applicable;
(e) Each Financed Receivable is based on an actual sale and
delivery of goods and/or services rendered, is due to Borrower, is not past due
or in default, has not been previously sold, assigned, transferred, or pledged
and is free of any liens, security interests and encumbrances other than
Permitted Liens;
(f) There are no defenses, offsets, counterclaims or
agreements for which the Account Debtor may claim any deduction or discount;
(g) Borrower reasonably believes no Account Debtor is
insolvent or subject to any Insolvency Proceedings;
(h) Borrower has not filed or had filed against it Insolvency
Proceedings and does not anticipate any filing;
(i) Bank has the right to endorse and/ or require Borrower to
endorse all payments received on Financed Receivables and all proceeds of
Collateral; and
(j) No representation, warranty or other statement of Borrower
in any certificate or written statement given to Bank contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statement contained in the certificates or statement not misleading.
5.4 LITIGATION. There are no actions or proceedings pending or, to the
knowledge of Borrower's Responsible Officers or legal counsel, threatened by or
against Borrower or any Subsidiary in which an adverse decision could reasonably
be expected to cause a Material Adverse Change.
5.5 NO MATERIAL DEVIATION IN FINANCIAL STATEMENTS. All consolidated
financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects Borrower's consolidated financial condition and
Borrower's consolidated results of operations. There has not been any material
deterioration in Borrower's consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
5.6 SOLVENCY. Borrower is able to pay its debts (including trade debts)
as they mature.
5.7 REGULATORY COMPLIANCE. Borrower is not an "investment company" or a
company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations X, T and U of the Federal Reserve
Board of Governors). Borrower has complied in all material respects with the
Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances
or rules, the violation of which could reasonably be expected to cause a
Material Adverse Change. None of Borrower's or any Subsidiary's properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all material taxes, except those being contested in good faith
with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to obtain
or make such consents, declarations, notices or filings would not reasonably be
expected to cause a Material Adverse Change.
5.8 SUBSIDIARIES. Borrower does not own any stock, partnership interest
or other equity securities except for Permitted Investments.
5.9 FULL DISCLOSURE. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained in the certificates or
statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 GOVERNMENT COMPLIANCE. Borrower shall maintain its and all
Subsidiaries' legal existence and good standing in its jurisdiction of formation
and maintain qualification in each jurisdiction in which the failure to so
qualify would reasonably be expected to have a material adverse effect on
Borrower's business or operations. Borrower shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower shall deliver to Bank: (i) as soon as available,
but no later than thirty (30) days after the last day of each month when
Advances or Letters of Credit are outstanding or forty-five (45) days after the
last day of each month when no Advances or Letters of Credit are outstanding, a
company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during the period certified by a Responsible
Officer and in a form acceptable to Bank; (ii) as soon as available, but no
later than one hundred twenty (120) days after the last day of Borrower's fiscal
year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion (other than
qualifications which relate to Borrower as a "going concern") on the financial
statements from an independent certified public accounting firm reasonably
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in material
damages or material costs to Borrower or any Subsidiary; (iv) budgets, sales
projections, operating plans or other financial information reasonably requested
by Bank; and (v) prompt notice of any material change in the composition of the
Intellectual Property Collateral, or the registration of any copyright,
including any subsequent ownership right of Borrower in or to any Copyright,
Patent or Trademark not shown in the IP Agreement or knowledge of an event that
materially adversely affects the value of the Intellectual Property Collateral.
(b) Within thirty (30) days after the last day of each month
when Advances or Letters of Credit are outstanding or forty-five (45) days after
the last day of each month when Advances or Letters of Credit are not
outstanding, Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in the form
of EXHIBIT B.
(c) Borrower will allow Bank to audit Borrower's Collateral,
including, but not limited to, Borrower's Accounts and accounts receivable, at
Borrower's expense, upon reasonable notice to Borrower; provided, however, prior
to the occurrence of an Event of Default, Borrower shall be obligated to pay for
not more than one (1) audit per year. After the occurrence of an Event of
Default, Bank may audit Borrower's Collateral, including, but not limited to,
Borrower's Accounts and accounts receivable at Borrower's expense and at Bank's
sole and exclusive discretion and without notification and authorization from
Borrower.
(d) Upon Bank's request, provide a written report respecting
any Financed Receivable, if payment of any Financed Receivable does not occur by
its due date and include the reasons for the delay.
(e) Provide Bank with, as soon as available, but no later than
thirty (30) days after the last day of each month when Advances or Letters of
Credit are outstanding or forty-five (45) days after the last day of each month
when Advances or Letters of Credit are not outstanding, an aged listing of
accounts receivable and accounts payable by invoice date, in form acceptable to
Bank.
(f) Provide Bank with, as soon as available, but no later than
thirty (30) days after the last day of each month when Advances or Letters of
Credit are outstanding or forty-five (45) days after the last day of each month
when Advances or Letters of Credit are not outstanding, a Deferred Revenue
report, in form acceptable to Bank.
(g) Provide Bank with the Eligible Accounts Summary as set
forth in Section 2.1.1(c).
6.3 TAXES. Borrower shall make, and cause each Subsidiary to make,
timely payment of all material federal, state, and local taxes or assessments
(other than taxes and assessments which Borrower is contesting in good faith,
with adequate reserves maintained in accordance with GAAP) and will deliver to
Bank, on demand, appropriate certificates attesting to such payments.
6.4 INSURANCE. Borrower shall keep its business and the Collateral
insured for risks and in amounts as Bank may reasonably request. Insurance
policies shall be in a form, with companies, and in amounts that are
satisfactory to Bank. All property policies shall have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
shall show Bank as an additional insured and all policies shall provide that the
insurer must give Bank at least twenty (20) days notice before canceling its
policy. At Bank's request, Borrower shall deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy shall,
at Bank's option, be payable to Bank on account of the Obligations. If Borrower
fails to obtain insurance as required under this Section or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section and take any action under the policies Bank deems prudent.
6.5 ACCOUNTS.
(a) In order to permit Bank to monitor Borrower's financial
performance and condition, Borrower and all Borrower's Subsidiaries, shall
maintain Borrower's and such Subsidiaries' primary depository and operating
accounts and securities accounts with Bank, which accounts shall represent at
least 75% of the dollar value of Borrower's and such Subsidiaries accounts at
all financial institutions (which percentage shall not include cash collateral
held at other financial institutions solely to secure letters of credit or lease
deposits or accounts exclusively used for payroll).
(b) Borrower shall identify to Bank, in writing, any bank or
securities account opened by Borrower with any institution other than Bank. In
addition, for each such account that Borrower or any Subsidiary at any time
opens or maintains, Borrower shall, at Bank's request and option, pursuant to an
agreement in form and substance acceptable to Bank, cause the depository bank or
securities intermediary to agree that such account is the collateral of Bank
pursuant to the terms hereunder. The provisions of the previous sentence shall
not apply to deposit accounts exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of Borrower's
employees.
6.6 FINANCIAL COVENANTS. So long as Borrower's Net Cash Balance is less
than or equal to $5,000,000, Borrower shall maintain, as of the last day of each
month, measured on an trailing three month basis, EBDA of no less than $200,000.
6.7 FURTHER ASSURANCES. Borrower shall execute any further instruments
and take further action as Bank reasonably requests to perfect or continue
Bank's security interest in the Collateral or to effect the purposes of this
Agreement.
7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank's prior written
consent.
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, except for Transfers (i) of inventory
in the ordinary course of business; (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) of worn-out or obsolete equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower or reasonably related thereto,
or have a material change in its ownership (other than by the sale of Borrower's
equity securities in a public offering or to venture capital investors so long
as Borrower identifies to Bank the venture capital investors prior to the
closing of the investment), or management. Borrower shall not, without at least
thirty (30) days prior written notice to Bank: (i) relocate its chief executive
office, or add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Twenty Five
Thousand Dollars ($25,000.00) in Borrower's assets or property), or (ii) change
its jurisdiction of organization, or (iii) change its organizational structure
or type, or (iv) change its legal name, or (v) change any organizational number
(if any) assigned by its jurisdiction of organization.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person, other than Permitted Acquisitions.
A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.
7.5 ENCUMBRANCE. Create, incur, or allow any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein. The Collateral may also be subject to Permitted Liens.
7.6 DISTRIBUTIONS; INVESTMENTS. (i) Directly or indirectly acquire or
own any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock.
7.7 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower, except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT. Make or permit any payment on any Subordinated
Debt, except under the terms of the Subordinated Debt, or amend any provision in
any document relating to the Subordinated Debt, without Bank's prior written
consent.
7.9 COMPLIANCE. Become an "investment company" or a company controlled
by an "investment company", under the Investment Company Act of 1940 or
undertake as one of its important activities extending credit to purchase or
carry margin stock, or use the proceeds of any Advance for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT. Borrower fails to pay any of the Obligations when
due;
8.2 COVENANT DEFAULT. Borrower fails or neglects to perform any
obligation in Section 6 or violates any covenant in Section 7 or fails or
neglects to perform, keep, or observe any other material term, provision,
condition, covenant or agreement contained in this Agreement, any Loan Documents
and as to any default under such other term, provision, condition, covenant or
agreement that can be cured, has failed to cure the default within ten (10) days
after the occurrence thereof; provided, however, grace and cure periods provided
under this section shall not apply to financial covenants or any other covenants
that are required to be satisfied, completed or tested by a date certain;
8.3 MATERIAL ADVERSE CHANGE. A Material Adverse Change occurs;
8.4 ATTACHMENT. (i) Any portion of Borrower's assets is attached,
seized, levied on, or comes into possession of a trustee or receiver and the
attachment, seizure or levy is not removed in ten (10) days; (ii) the service of
process upon Borrower seeking to attach, by trustee or similar process, any
funds of Borrower on deposit with Bank, or any entity under the control of Bank
(including a subsidiary); (iii) Borrower is enjoined, restrained, or prevented
by court order from conducting any part of its business; (iv) a judgment or
other claim becomes a Lien on a portion of Borrower's assets; or (v) a notice of
lien, levy, or assessment is filed against any of Borrower's assets by any
government agency and not paid within ten (10) days after Borrower receives
notice;
8.5 INSOLVENCY. (i) Borrower is unable to pay its debts (including
trade debts) as they become due or otherwise becomes insolvent; (ii) Borrower
begins an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within thirty (30) days (but no
Advances shall be made before any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could result in a Material Adverse Change;
8.7 JUDGMENTS. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Two Hundred Thousand
Dollars ($200,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment);
8.8 MISREPRESENTATIONS. If Borrower or any Person acting for Borrower
makes any material misrepresentation or material misstatement now or later in
any warranty or representation in this Agreement or in any writing delivered to
Bank or to induce Bank to enter this Agreement or any Loan Document;
8.9 SUBORDINATED DEBT. A default or breach occurs under any agreement
between Borrower and any creditor of Borrower that signed a subordination
agreement with Bank, or any creditor that has signed a subordination agreement
with Bank breaches any terms of the subordination agreement.
8.10 GUARANTY. (a) Any guaranty of any Obligations terminates or ceases
for any reason to be in full force and effect; (b) any Guarantor does not
perform any obligation or covenant under any guaranty of the Obligations; (c)
any circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or 8.8. occurs with
respect to any Guarantor (d) the liquidation, winding up, or termination of
existence of any Guarantor or (e) a material impairment in the perfection or
priority of Bank's Lien in the collateral provided by Guarantor or in the value
of such collateral.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. When an Event of Default occurs and continues
Bank may, without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but
if an Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's
benefit under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with Account
Debtors for amounts, on terms and in any order that Bank considers advisable and
notify any Person owing Borrower money of Bank's security interest in such funds
and verify the amount of such account. Borrower shall collect all payments in
trust for Bank and, if requested by Bank, immediately deliver the payments to
Bank in the form received from the Account Debtor, with proper endorsements for
deposit;
(d) Make any payments and do any acts it considers necessary
or reasonable to protect its security interest in the Collateral. Borrower shall
assemble the Collateral if Bank requests and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby
granted a non-exclusive, royalty-free license or other right to use, without
charge, Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
(g) Place a "hold" on any account maintained with Bank and/or
deliver a notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any control agreement or similar
agreements providing control of any Collateral; and
(h) Exercise all rights and remedies and dispose of the
Collateral according to the Code.
9.2 BANK EXPENSES; UNPAID FEES. Any amounts paid by Bank as provided
herein shall constitute Bank Expenses and are immediately due and payable, and
shall bear interest at the Default Rate and be secured by the Collateral. No
payments by Bank shall be deemed an agreement to make similar payments in the
future or Bank's waiver of any Event of Default. In addition, any amounts
advanced hereunder which are not based on Financed Receivables (including,
without limitation, unpaid fees and Finance Charges as described in Section 2.2)
shall accrue interest at the Default Rate and be secured by the Collateral.
9.3 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices regarding the safekeeping of collateral, Bank shall
not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other Person. Borrower bears all risk of loss, damage or destruction of the
Collateral.
9.4 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements are cumulative. Bank has
all rights and remedies provided under the Code, by law, or in equity. Bank's
exercise of one right or remedy is not an election, and Bank's waiver of any
Event of Default is not a continuing waiver. Bank's delay is not a waiver,
election, or acquiescence. No waiver hereunder shall be effective unless signed
by Bank and then is only effective for the specific instance and purpose for
which it was given.
9.5 DEMAND WAIVER. Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees held by Bank on which
Borrower is liable.
9.6 DEFAULT RATE. After the occurrence of an Event of Default, all
Obligations shall accrue interest at the Applicable Rate plus five percent
(5.0%) per annum (the "Default Rate").
10 NOTICES.
Notices or demands by either party about this Agreement must be in
writing and personally delivered or sent by an overnight delivery service, by
certified mail postage prepaid return receipt requested, or by fax to the
addresses listed at the beginning of this Agreement. A party may change notice
address by written notice to the other party.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa ▇▇▇▇▇ County, California; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank. Borrower expressly
submits and consents in advance to such jurisdiction in any action or suit
commenced in any such court, and Borrower hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or equitable relief
as is deemed appropriate by such court. Borrower hereby waives personal service
of the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower's actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK
EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING
OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES' AGREEMENT TO WAIVE
THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a
trial by jury is not enforceable, the parties hereto agree that any and all
disputes or controversies of any nature between them arising at any time shall
be decided by a reference to a private judge, mutually selected by the parties
(or, if they cannot agree, by the Presiding Judge of the Santa ▇▇▇▇▇ County,
California Superior Court) appointed in accordance with California Code of Civil
Procedure Section 638 (or pursuant to comparable provisions of federal law if
the dispute falls within the exclusive jurisdiction of the federal courts),
sitting without a jury, in Santa ▇▇▇▇▇ County, California; and the parties
hereby submit to the jurisdiction of such court. The reference proceedings shall
be conducted pursuant to and in accordance with the provisions of California
Code of Civil Procedure §§ 638 through 645.1, inclusive. The private
judge shall have the power, among others, to grant provisional relief, including
without limitation, entering temporary restraining orders, issuing preliminary
and permanent injunctions and appointing receivers. All such proceedings shall
be closed to the public and confidential and all records relating thereto shall
be permanently sealed. If during the course of any dispute, a party desires to
seek provisional relief, but a judge has not been appointed at that point
pursuant to the judicial reference procedures, then such party may apply to the
Santa ▇▇▇▇▇ County, California Superior Court for such relief. The proceeding
before the private judge shall be conducted in the same manner as it would be
before a court under the rules of evidence applicable to judicial proceedings.
The parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a).
Nothing in this paragraph shall limit the right of any party at any time to
exercise self-help remedies, foreclose against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement binds and is for the
benefit of the successors and permitted assigns of each party. Borrower may not
assign this Agreement or any rights or Obligations under it without Bank's prior
written consent which may be granted or withheld in Bank's discretion. Bank has
the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.
12.2 INDEMNIFICATION. Borrower hereby indemnifies, defends and holds
Bank and its officers, employees, directors and agents harmless against: (a) all
obligations, demands, claims, and liabilities asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (b) all
losses or Bank Expenses incurred, or paid by Bank from, following, or
consequential to transactions between Bank and Borrower (including reasonable
attorneys' fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of all
Obligations in this Agreement.
12.4 SEVERABILITY OF PROVISION. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
12.5 AMENDMENTS IN WRITING; INTEGRATION. All amendments to this
Agreement must be in writing signed by both Bank and Borrower. This Agreement
and the Loan Documents represent the entire agreement about this subject matter,
and supersede prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.
12.6 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, are an original, and all taken together, constitute
one Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement continue in full force while any Obligations remain outstanding.
The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until
the statute of limitations with respect to such claim or cause of action shall
have run.
12.8 CONFIDENTIALITY. In handling any confidential information, Bank
shall exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Bank's
subsidiaries or affiliates in connection with their business with Borrower; (ii)
to prospective transferees or purchasers of any interest in the Advances
(provided, however, Bank shall use commercially reasonable efforts in obtaining
such prospective transferee's or purchaser's agreement to the terms of this
provision); (iii) as required by law, regulation, subpoena, or other order, (iv)
as required in connection with Bank's examination or audit; and (v) as Bank
considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank's possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (b) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES. In any action or proceeding
between Borrower and Bank arising out of the Loan Documents, the prevailing
party will be entitled to recover its reasonable attorneys' fees and other
reasonable costs and expenses incurred, in addition to any other relief to which
it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS. In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ACCOUNT DEBTOR" is as defined in the Code and shall include, without
limitation, any person liable on any Financed Receivable, such as, a guarantor
of the Financed Receivable and any issuer of a letter of credit or banker's
acceptance.
"ADJUSTED QUICK RATIO" is the ratio of Quick Assets to Current
Liabilities minus Deferred Revenue.
"ADJUSTMENTS" are all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account
Debtor for any Financed Receivable.
"ADVANCE" is defined in Section 2.1.1.
"ADVANCE RATE" eighty percent (80.0%), net of any offsets related to
each specific Account Debtor, including, without limitation, Deferred Revenue
for maintenance and services contracts.
"AFFILIATE" is a Person that owns or controls directly or indirectly
the Person, any Person that controls or is controlled by or is under common
control with the Person, and each of that Person's senior executive officers,
directors, partners and, for any Person that is a limited liability company,
that Person's managers and members.
"APPLICABLE RATE" is (a) when Borrower's Net Cash Balance is greater
than $5,000,000, a per annum rate equal to the Prime Rate plus one-half of one
percent (0.5%), (b) when Borrower's Net Cash Balance is less than or equal to
$5,000,000 but greater than $2,000,000, a per annum rate equal to the Prime Rate
plus three-quarters of one percent (0.75%) and (c) when Borrower's Net Cash
Balance is less than or equal to $2,000,000, a per annum rate equal to the Prime
Rate plus one and one-half percent (1.5%).
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Uniform Commercial Code as adopted in California, as
amended and as may be amended and in effect from time to time.
"COLLATERAL" is any and all properties, rights and assets of Borrower
granted by Borrower to Bank or arising under the Code, now, or in the future, in
which Borrower obtains an interest, or the power to transfer rights, as
described on EXHIBIT A.
"COLLATERAL HANDLING FEE" is defined in Section 2.2.4.
"COLLECTIONS" are all funds received by Bank from or on behalf of an
Account Debtor for Financed Receivables.
"COMPLIANCE CERTIFICATE" is attached as EXHIBIT B.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"COPYRIGHTS" is defined in the IP agreement.
"CREDIT EXTENSION" is any Advance, Letter of Credit, or any other
extension of credit by Bank for Borrower's benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"DEFAULT RATE" is defined in Section 9.6.
"DEFERRED REVENUE" is all amounts received or invoiced, as appropriate,
in advance of performance under contracts and not yet recognized as revenue.
"PERFECTION CERTIFICATE" is a certain Schedule annexed hereto.
"EBDA" is earnings before depreciation, amortization, non-cash stock
option expense and non-one-time, non-recurring, non-cash expenses related to
acquisitions and associated equity financings, as determined in accordance with
GAAP.
"ELIGIBLE ACCOUNTS" are billed Accounts in the ordinary course of
Borrower's business that meet all Borrower's representations and warranties in
Section 5.3, have been, at the option of Bank, confirmed in accordance with
Section 2.1.1 (d), and are due and owing from Account Debtors deemed
creditworthy by Bank in its sole discretion. Without limiting the fact that the
determination of which Accounts are eligible hereunder is a matter of Bank
discretion in each instance, Eligible Accounts shall not include the following
Accounts (which listing may be amended or changed in Bank's discretion with
notice to Borrower):
(a) Accounts that the Account Debtor has not paid within ninety (90)
days of invoice date;
(b) Accounts for an Account Debtor, fifty percent (50%) or more of
whose Accounts have not been paid within ninety (90) days of invoice date;
(c) Accounts for which the Account Debtor does not have its principal
place of business in the United States, unless agreed to by Bank in writing, in
its sole discretion, on a case-by-case basis;
(d) Accounts greater than $250,000 in the aggregate, for which the
Account Debtor is a federal government entity or any department, agency, or
instrumentality thereof except for Accounts of the United States if the payee
has assigned its payment rights to Bank and the assignment has been acknowledged
under the Assignment of Claims Act of 1940 (31 U.S.C. 3727, the "Assignment of
Claims Act"); provided, however, that for so long as Borrower's Net Cash Balance
is greater than $5,000,000, the carve out of $250,000 above will be increased to
$500,000;
(e) Accounts for which Borrower owes the Account Debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable, customer
deposits or credit accounts);
(f) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval, ▇▇▇▇
and hold, or other terms if Account Debtor's payment may be conditional;
(g) Accounts for which the Account Debtor is Borrower's Affiliate,
officer, employee, or agent;
(h) Accounts in which the Account Debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up to the
disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(i) Accounts acquired by Borrower pursuant to that certain Asset
Purchase Agreement, dated May 19, 2005, as amended by a Amendment to Asset
Purchase Agreement, dated June 14, 2005 and as amended by a Second Amended to
Asset Purchase Agreement, dated July 29, 2005, by and among Borrower,
Confidential Business Resources, Inc., ▇▇▇▇▇▇▇ & Associates, Inc. and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, other than accounts receivable from ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, that would
otherwise not be an "Ineligible Receivable" but for this subsection (j).
(j) Accounts for which Bank reasonably determines collection to be
doubtful or any Accounts which are unacceptable to Bank for any reason.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"EVENTS OF DEFAULT" are set forth in Article 8.
"FACILITY AMOUNT" is Six Million Two Hundred Fifty Thousand Dollars
($6,250,000).
"FACILITY FEE" is defined in Section 2.2.2.
"FINANCE CHARGES" is defined in Section 2.2.3.
"FINANCED RECEIVABLES" are all those Eligible Accounts, including their
proceeds which Bank finances and makes an Advance, as set forth in Section
2.1.1. A Financed Receivable stops being a Financed Receivable (but remains
Collateral) when the Advance made for the Financed Receivable has been fully
paid.
"FINANCED RECEIVABLE BALANCE" is the total outstanding gross face
amount, at any time, of any Financed Receivable.
"FOREIGN CURRENCY" means lawful money of a country other than the
United States.
"GAAP" is generally accepted accounting principles.
"GUARANTOR" is any present or future guarantor of the Obligations,
including GlobalOptions Group, Inc.
"GUARANTY" is that certain secured Guaranty by Guarantor in favor of
Bank, dated March 8, 2006, as amended.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" is any proceeding by or against any Person
under the United States Bankruptcy Code, or any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, compositions,
extensions generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY COLLATERAL" is a defined in the IP Agreement.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"INVOICE TRANSMITTAL" shows Eligible Accounts which Bank may finance
and, for each such Account, includes the Account Debtor's, name, address,
invoice amount, invoice date and invoice number.
"IP AGREEMENT" is that certain Intellectual Property Security Agreement
by and between Borrower and Bank of even date herewith.
"LETTER OF CREDIT" means a standby letter of credit issued by Bank or
another institution based upon an application, guarantee, indemnity or similar
agreement on the part of Bank as set forth in Section 2.1.2.
"LETTER OF CREDIT APPLICATION" is defined in Section 2.1.2(a).
"LETTER OF CREDIT RESERVE" has the meaning set forth in Section
2.1.2(d).
"LOCKBOX" is defined in Section 2.2.7.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by BORROWER, and any other present or future agreement
between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated.
"MASK WORKS" is defined in the IP Agreement.
"MATERIAL ADVERSE CHANGE" is: (i) A material impairment in the
perfection or priority of Bank's security interest in the Collateral or in the
value of such Collateral; (ii) a material adverse change in the business,
operations, or condition (financial or otherwise) of Borrower; or (iii) a
material impairment of the prospect of repayment of any portion of the
Obligations; or (iv) Bank determines, based upon information available to it and
in its reasonable judgment, that there is a reasonable likelihood that Borrower
shall fail to comply with one or more of the financial covenants in Section 6
during the next succeeding financial reporting period.
"MATURITY DATE" is 364 days from the date of this Agreement.
"MINIMUM FINANCE CHARGE" is One Thousand Dollars ($1,000.00); provided,
however that if Borrower's average aggregate monthly demand deposit account
balance is greater than $2,000,000 in any month, the Minimum Finance Charge for
the following month shall be waived.
"NET CASH BALANCE" is Borrower's daily cash balance at Bank minus all
outstanding Advances and minus the face amount of all outstanding Letters of
Credit.
"OBLIGATIONS" are all advances, liabilities, obligations, covenants and
duties owing, arising, due or payable by Borrower to Bank now or later under
this Agreement or any other document, instrument or agreement, account
(including those acquired by assignment) primary or secondary, such as all
Advances, Finance Charges, Facility Fee, Collateral Handling Fee, interest,
fees, expenses, professional fees and attorneys' fees, or other amounts now or
hereafter owing by Borrower to Bank.
"PATENTS" is defined in the IP Agreement.
"PERFECTION CERTIFICATE" is that certain Perfection Certificate, dated
February 3, 2006 submitted to Bank in connection with the Loan and Security
Agreement by and between Borrower and Bank of even date therewith, as amended by
that First Amendment to Perfection Certificate, attached hereto as EXHIBIT C.
"PERMITTED ACQUISITIONS" include (i) acquisitions by Borrower, of
substantially all the stock or property of any Person or (ii) acquisitions by
Guarantor which result in substantially all of the stock or property of a Person
being owned by Borrower following the closing of such transaction, in each case
where:
(a) Borrower has provided Bank with no less than 30 days notice prior
to the closing of such transaction, which notice includes the details of such
transaction, including, without limitation, the name of the Person Borrower or
Guarantor, as the case may be, is acquiring, the total consideration for the
transaction (broken out into line items for cash and other property), the form
of the transaction (asset purchase, stock purchase or otherwise) and any other
information reasonably requested by Bank;
(b) Borrower has provided Bank with lien and judgment searches
conducted by Borrower on the Person being acquired prior to the closing of the
transaction (which shall include, without limitation lien searches on any other
names (prior names, d/b/a's or otherwise) of such Person used within the past
five years);
(c) Borrower's Net Cash Balance is greater than $5,000,000 prior to and
immediately following such transaction;
(d) The cash portion of the purchase price in such transaction is not
more than $5,000,000 in the aggregate, including any contingent obligations
(other than earn out payments);
(e) The aggregate cash portion of the purchase price paid in all such
transactions during the term of this Agreement, including contingent
obligations, is not more than $15,000,000 in the aggregate (other than earn out
payments);
(f) An Event of Default has not occurred and is continuing or could
reasonably be expected to result from such transaction; and
(g) The assets of the target company in such acquisition are free and
clear of all Liens that would not otherwise constitute Permitted Liens hereunder
at the time of the closing of such transaction.
In addition, for purposes hereof, Guarantor's acquisition of Hyperion
Risk. Inc., a Florida corporation, on July 24, 2006 will also be considered a
"Permitted Acquisition" hereunder and will not be included in the aggregate
purchase price cap set forth in subsection (e) above.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Subordinated Debt;
(c) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(d) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are: (i) marketable direct obligations issued
or unconditionally guaranteed by the United States or its agency or any state
maturing within 1 year from its acquisition, (ii) commercial paper maturing no
more than 1 year after its creation and having the highest rating from either
Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, Inc., (iii) Bank's
certificates of deposit issued maturing no more than 1 year after issue, (iv)
any other investments administered through Bank.
"PERMITTED LIENS" are:
(a) Liens arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens securing no more than $50,000.00 in the
aggregate amount outstanding (i) on equipment acquired or held by Borrower
incurred for financing the acquisition of the equipment, or (ii) existing on
equipment when acquired, IF the Lien is confined to the property and
improvements and the proceeds of the equipment;
(d) Leases or subleases and non-exclusive licenses or sublicenses
granted in the ordinary course of Borrower's business, IF the leases, subleases,
licenses and sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (d), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"QUICK ASSETS" is, on any date, Borrower's unrestricted cash, cash
equivalents, net accounts receivable and investments with maturities of fewer
than 12 months determined according to GAAP.
"RECONCILIATION DAY" is the last calendar day of each month.
"RECONCILIATION PERIOD" is each calendar month.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer,
President, Chief Financial Officer and Controller of Borrower.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (pursuant to a subordination agreement entered into
between Bank, Borrower and the subordinated creditor), on terms acceptable to
Bank.
"SUBSIDIARY" is any Person, corporation, partnership, limited liability
company, joint venture, or any other business entity of which more than 50% of
the voting stock or other equity interests is owned or controlled, directly or
indirectly, by the Person or one or more Affiliates of the Person.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt.
"TRADEMARKS" is defined in the IP Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the State of California as of
the date first above written.
BORROWER:
GLOBALOPTIONS, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Ph.D.
----------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Ph.D.
-------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
BANK:
SILICON VALLEY BANK
By /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Title: Vice President
------------------------------------
Acknowledged and Agreed by Guarantor:
GLOBALOPTIONS GROUP, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Ph.D.
----------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Ph.D.
-------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
