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EXHIBIT 10.1
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LOAN AND SECURITY AGREEMENT
by and between
CYBERGUARD CORPORATION,
a Florida corporation
TRADEWAVE CORPORATION,
a Florida corporation
and
COAST BUSINESS CREDIT(R),
a division of Southern Pacific Bank
Dated as of December 29, 1997
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COAST
LOAN AND SECURITY AGREEMENT
(CO-BORROWERS)
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BORROWER: CYBERGUARD CORPORATION,
A FLORIDA CORPORATION
ADDRESS: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
BORROWER: TRADEWAVE CORPORATION,
A FLORIDA CORPORATION
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
DATE: DECEMBER 29, 1997
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT(R), a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and each of the Borrowers named above (except where expressly
stated otherwise or unless the context requires a different meaning, reference
to Borrower in this Loan and Security Agreement, and all documents and
agreements related thereto, shall mean each of the above-referenced Borrowers,
jointly and severally). The chief executive offices for each of the respective
Borrowers is set forth above ("Borrower's Address"). The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed an integral part of
this Agreement. (Definitions of certain terms used in this Agreement are set
forth in Section 1 below.)
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable or General Intangible.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
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"AUDIT" means to inspect, audit and copy Borrower's books and records and
the Collateral.
"BORROWER" has the meaning, unless the context requires a different
representation set forth in the introduction to this Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the introduction to this
Agreement with respect to each of the Borrowers.
"BUSINESS DAY" means a day on which Coast is open for business.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than fifty percent
(50%) of the total voting power of all classes of stock or other ownership
interests then outstanding of any Borrower normally entitled to vote in the
election of directors or analogous governing body.
"CLOSING DATE" means date of the initial funding under this Agreement.
"COAST" has the meaning set forth in the introduction to this Agreement.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 4 hereof.
"CREDIT LIMIT" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"CYBERGUARD" means CyberGuard Corporation, a Florida corporation, one of
the Borrowers herein.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION FEE" means the amount set forth on the Schedule that
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"EBT" means, in any fiscal period, Borrower's consolidated net income
(other than extraordinary or non-recurring items of Borrower for such period),
PLUS (i) the amount of all income tax expense of Borrower for such period, on a
consolidated basis, and PLUS OR MINUS (as the case may be) (ii) any other
non-cash charges which have been added or subtracted, as the case may be, in
calculating Borrower's consolidated net income for such period.
"ELIGIBLE FOREIGN RECEIVABLES" means Receivables arising from CyberGuard's
customers, excluding U.K. or any Affiliate of Borrower, located outside the
United States which Coast otherwise approves for borrowing in its good faith
judgment. Without limiting the foregoing, Coast will consider the following in
determining the eligibility of such Receivables: (i) Receivables up to sixty
(60) days past due date, not to exceed one hundred and twenty (120) days past
invoice date, or (ii) whether CyberGuard's goods are shipped backed by an
irrevocable letter of credit satisfactory to Coast (as to form, substance, and
issuer or domestic confirming bank) that has been delivered to Coast and is
directly drawable by Coast, or (iii) whether CyberGuard's customer is a large or
rated company having a verifiable credit history, or (iv) whether CyberGuard's
customer is a foreign subsidiary of a CyberGuard customer that was formed and
has its primary place of business within the United States, or (v) whether
CyberGuard's customer is a large foreign corporation, or (vi) whether
CyberGuard's customer is a foreign company with a Dun & Bradstreet rating, or
(vii) whether CyberGuard's goods are shipped to a company that has credit
insurance, or (viii) whether the Receivable represents proceeds of assets or
interests which Coast, in good faith believes is subject to a first priority,
unavoidable lien and security interest in favor of Coast.
"ELIGIBLE INVENTORY" means CyberGuard's Inventory which Coast, in its good
faith judgment, deems eligible for borrowing, based on such considerations as
Coast may from time to time deem appropriate. Without limiting the fact that the
determination of which Inventory is eligible for borrowing is a matter of
Coast's discretion, Inventory which does not meet the following requirements
will not be deemed to be Eligible Inventory: Inventory which (i) consists of raw
materials, finished goods, in good, new and salable condition which is not
perishable, not obsolete or unmerchantable, and is not
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comprised of work in process, packaging materials or supplies; (ii) meets all
applicable governmental standards; (iii) has been manufactured in compliance
with the Fair Labor Standards Act; (iv) conforms in all respects to the
warranties and representations set forth in this Agreement; (v) is at all times
subject to Coast's duly perfected, first priority security interest; and (vi) is
situated only at Borrower's facility located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ or at such other locations as Coast may form time to time
approve in writing.
"ELIGIBLE RECEIVABLES" means Receivables and Eligible Foreign Receivables
arising in the ordinary course of CyberGuard's business from the sale of goods
or rendition of services (excluding Receivables from TradeWave, U.K. or any
Affiliate of Borrower), which Coast, in its sole judgment, shall deem eligible
for borrowing, based on such considerations as Coast may from time to time deem
appropriate. Eligible Receivables shall not include the following:
(a) Receivables that the Account Debtor has failed to pay
within sixty (60) days of due date of due but not exceeding one hundred twenty
(120) days of the invoice date;
(b) Receivables owed by an Account Debtor or its Affiliates,
exclusive of distributors and foreign accounts, where twenty-five percent (25%)
or more of all Receivables owed by that Account Debtor (or its Affiliates) are
deemed ineligible under clause (a) above;
(c) Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Receivables with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Receivables, other than Eligible Foreign Receivables, that
are not payable in Dollars or with respect to which the Account Debtor: (i) does
not maintain its chief executive office in the United States, or (ii) is not
organized under the laws of the United States or any State thereof, or (iii) is
the government of any foreign country or sovereign state, or of any state,
province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof;
(f) Receivables with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
CyberGuard has complied, to the satisfaction of Coast, with the Assignment of
Claims Act, 31 U.S.C. ss. 3727), or (ii) any State of the United States
(exclusive, however, of Receivables owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act or, if such statutory
counterpart exists, CyberGuard has complied, to the satisfaction of Coast, with
such statutory counterpart);
(g) Receivables with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Receivables and that
portion of Receivables which are or will be subject to; credit or reduction
arising out of or relating to sales of upgraded software and similar products;
(h) Receivables with respect to an Account Debtor that is a
distributor of Borrower whose total obligations owing to Borrower exceed five
percent (5%) of all Eligible Receivables, to the extent that the obligations
owing by such Account Debtor exceeds five percent (5%);
(i) Receivables of Account Debtors that are distributors of
Borrower whose aggregate obligations owing to Borrower, at any point in time,
exceed thirty percent (30%) of all Eligible Receivables, to the extent of the
obligations owing by such Account Debtors exceed thirty percent (30%);
(j) Receivables with respect to which any Account Debtor is
subject to any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation proceeding, or becomes insolvent, or goes
out of business;
(k) Receivables the collection of which Coast, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition or other circumstances;
(l) Receivables with respect to which the goods giving rise to
such Receivable have not been shipped and billed to the Account Debtor, the
services giving rise to such Receivables have not been performed and accepted by
the Account Debtor, or the Receivable otherwise do not represent a final sale or
completed transaction;
(m) Receivables with respect to which
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the Account Debtor is located in the states of New Jersey, Minnesota, Indiana,
or West Virginia (or any other state that requires a creditor to file a Business
Activity Report or similar document in order to bring suit or otherwise enforce
its remedies against such Account Debtor in the courts or through any judicial
process of such state), unless CyberGuard has qualified to do business in New
Jersey, Minnesota, Indiana, West Virginia, or such other states, or has filed a
Notice of Business Activities Report with the applicable division of taxation,
the department of revenue, or with such other state offices, as appropriate, for
the then-current year, or is exempt from such filing requirement;
(n) Receivables that represent progress payments or other
advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by Borrower
of the subject contract for goods or services;
(o) Receivables with respect to which the Account Debtors are
customers of Borrower located outside of the United States whose aggregate
obligations owing to Borrower exceed fifty percent (50%) of all Eligible
Receivables, to the extent of the obligations owing by such Account Debtors in
excess of such percentage;
(p) Receivables comprised in whole or in part of proceeds of
Borrower's interest in copyrights that have not been filed, registered, renewed
or recorded, as the case may be, in the United States Copyright Office and with
such governmental or administrative offices located elsewhere as Coast may deem
necessary or appropriate under the circumstances;
(q) Receivables comprised in whole or in part of proceeds of
Borrower's interest in copyrights where copyright mortgages or similar documents
in favor of Coast have not been recorded in the United States Copyright Office
and with such governmental or administrative offices located elsewhere as Coast
may deem necessary or appropriate under the circumstances; or
(r) Receivables comprised in whole or in part of proceeds of
Borrower's interests in patents, trademarks, tradenames and other intellectual
property rights where there is or, in Coast's good faith judgment, may be a
claim that Coast does not have a first priority, valid, perfected, enforceable
and unavoidable lien or security interest in such interests or the Receivables
resulting therefrom.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EVENT OF DEFAULT" means any of the events set forth in Section 10.1 of
this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, Investment Property, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, intellectual
property (including, without limitation, patents, copyrights, licenses, and
intellectual property relating to Borrower's Firewall Software and all other
present and future products, technology and services), security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit, and including without limitation all farm products), and all materials
and supplies of every kind, nature and description which are or might be used or
consumed
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in Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.
"INVENTORY LOANS" means the Loans described in Section 2.1(b) of the
Schedule.
"INVESTMENT PROPERTY" has the meaning set forth in Section 9115 of the
Code as in effect as of the date hereof.
"LETTER OF CREDIT" has the meaning set forth in Section 5101 ET. SEQ. of
the Code as in effect as of the date hereof.
"LOAN DOCUMENTS" means this Agreement, the Schedule, all documents and
agreements referred to in this Agreement and Schedule and all other agreements,
instruments, documents, supplements and amendments now and hereafter existing or
executed in connection with this Agreement or in furtherance of the various
transactions contemplated hereby.
"LOANS" has the meaning set forth in Section 2.1 hereof.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary or Affiliate of Borrower or any guarantor of any of
the Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this the Loan Documents (including,
without limitation, repayment of the Obligations as they come due) or (iii) the
validity or enforceability of this Agreement or any other agreement or document
entered into by any party in connection herewith, or the rights or remedies of
Coast hereunder or thereunder, (which Coast, in its good faith judgment,
considers as material rights or remedies). If there is a material adverse effect
involving a subsidiary or Affiliate of Borrower, the same shall not constitute a
"Material Adverse Effect" under this Agreement if (A) neither the subsidiary nor
the Affiliate is a Borrower or a guarantor of the Obligations, and (B) Coast
concludes, based upon its good faith judgment, that the adverse events are not
likely to materially increase the risk that any Borrower or guarantor will fail
to meet their respective Obligations under the Loan Documents.
"MATURITY DATE" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 2 of the
Schedule.
"MINIMUM MONTHLY INTEREST" has the meaning set forth in Section 3 of the
Schedule.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"PERMITTED LIENS" means the following:
(a) purchase money security interests in specific items of
Equipment;
(b) leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in
writing by Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently
with this Agreement;
(f) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by
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the existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; or
(h) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, general partnership,
limited partnership, limited liability partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"PRIME RATE" means the actual "Reference Rate" or the substitute therefor
of the Bank of America NT & SA whether or not that rate is the lowest interest
rate charged by said bank. If the Prime Rate, as defined, is unavailable, "Prime
Rate" shall mean the highest of the prime rates published in the Wall Street
Journal on the first business day of the applicable month, as the base rate on
corporate loans at large U.S. money center commercial banks.
"RECEIVABLE LOANS" means the Loans described in Section 2.1(a) of the
Schedule.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"RENEWAL DATE" shall mean the Maturity Date if this Agreement is renewed
pursuant to Section 9.1 hereof, and each anniversary thereafter that this
Agreement is renewed pursuant to Section 9.1 hereof.
"RENEWAL FEE" means the fee that Borrower must pay Coast upon renewal of
this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
"SOLVENT" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"TANGIBLE NET WORTH" means Borrower's consolidated equity, PLUS
subordinated debt otherwise permitted hereunder, LESS goodwill, patents,
trademarks, copyrights, franchises, formulas, leasehold interests, leasehold
improvements, non-compete agreements, engineering plans, deferred tax benefits,
organization costs, and any other assets of Borrower that would be treated as
intangible assets on Borrower's balance sheet prepared in accordance with GAAP.
"TERM LOAN" means the Loans described in Section 2.1(c) of the Schedule.
"TRADEWAVE" means TradeWave Corporation, a Florida corporation and one of
the Borrowers herein.
"U.K." means CyberGuard Europe Limited, an affiliate of Borrower and a
Guarantor of the Obligations of Borrower.
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"OTHER TERMS." All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. 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. CREDIT FACILITIES.
2.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts and
in percentages to be determined by Coast in its good faith discretion, up to the
Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce its advance
rates based upon Eligible Receivables or Eligible Inventory without declaring a
Default or an Event of Default if it determines that there has occurred a
Material Adverse Effect.
3. INTEREST AND FEES.
3.1 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be outstanding
from time to time, Borrower shall pay Coast Minimum Monthly Interest during the
term of this Agreement with respect to the Receivable Loans and the Inventory
Loans in the amount set forth on the Schedule.
3.2 FEES. Borrower shall pay Coast the fees shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are deemed
fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and General
Intangibles, including, without limitation, all of Borrower's Deposit Accounts,
patents, copyrights, contracts and intellectual property relating to Borrower's
business, goods, services and technology, and all money, and all property now or
at any time in the future in Coast's possession (including claims and credit
balances), and all proceeds of any of the foregoing (including proceeds of any
insurance policies, proceeds of proceeds, and claims against third parties), all
products of any of the foregoing, and all books and records related to any of
the foregoing (all of the foregoing, together with all other property in which
Coast may now or in the future be granted a lien or security interest, is
referred to herein, collectively, as the "Collateral").
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the satisfaction,
in the sole discretion of Coast, at or prior to the first advance of funds
hereunder, of each, every and all of the following conditions:
5.1 STATUS OF ACCOUNTS AT CLOSING. No accounts payable of Borrower shall
be due and unpaid ninety (90) days past its invoice date except for such
accounts payable being contested in good faith in appropriate proceedings and
for which adequate reserves have been provided.
5.2 MINIMUM AVAILABILITY. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 LANDLORD WAIVERS. Coast shall have received duly executed landlord
waivers and access agreements in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and, when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
leased locations where Borrower maintains any inventory or equipment.
5.4 EXECUTED AGREEMENT. Coast shall have received this Agreement duly
executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.5 OPINION OF BORROWER'S COUNSEL. Coast shall have received an opinion of
Borrower's counsel, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.6 PRIORITY OF COAST'S LIENS. Coast shall have received the results of
"of record" searches, filings, recordations, assignments, subordinations and
such other documents, agreements and instruments satisfactory to Coast in its
sole and absolute discretion, reflecting its Uniform Commercial Code and other
filings against Borrower and its assets and satisfying Coast, in its sole
discretion, that Coast has a perfected, first priority lien in and upon all of
the Collateral, subject only to Permitted
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Liens.
5.7 INSURANCE. Coast shall have received copies of the insurance binders
or certificates evidencing Borrower's compliance with Section 8.2 hereof,
including lender's loss payee endorsements.
5.8 BORROWER'S EXISTENCE. Coast shall have received copies of Borrower's
articles, certificates of incorporation, charters and all amendments thereto,
and a Certificates of Good Standing, and equivalent documents certified by the
Secretary of State of the State of the incorporation of each Borrower certified
by the Secretary of State of the state of Borrower's organization, or other
governmental authority having jurisdiction over such matters, and Coast shall
have received Certificates of Foreign Qualification for Borrower from the
Secretary of State of each state or jurisdiction wherein the failure to be so
qualified could have a Material Adverse Effect. All such documents and reports
shall be current and acceptable to Coast in its sole and absolute discretion.
5.9 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-Laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.10 TAXES. Coast shall have received evidence from Borrower that
Borrower has complied with all its domestic and foreign tax obligations and its
tax withholding and other payment of obligations as required by applicable law,
with evidence thereof in form and substance satisfactory to Coast in its sole
and absolute discretion.
5.11 DUE DILIGENCE. Coast shall have completed its due diligence with
respect to Borrower.
5.12 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such other
agreements, instruments and documents as Coast may require in connection with
the transactions contemplated hereby, all in form and substance satisfactory to
Coast in Coast's sole and absolute discretion, and in form for filing in the
appropriate filing office, including, but not limited to, those documents listed
in this Agreement and in the Schedule.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (a) have
been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles or certificate of incorporation, or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (d) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply, with all laws relating to the conduct of business under a
fictitious business name where the failure to do so would have a Material
Adverse Effect.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
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6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Coast and the Collateral against all claims of others. None of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower will not become a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral or will prohibit, restrain or impair Borrower's right
to remove any Collateral from the leased premises. Borrower shall, with respect
to existing real property leases, and any future real property leases, obtain
landlord waivers and agreements in form and content acceptable to Coast.
Whenever any Collateral is located upon premises in which any third party has an
interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien
or otherwise), Borrower shall, whenever requested by Coast, use its best efforts
to cause such third party to execute and deliver to Coast, in form acceptable to
Coast, such waivers and subordinations as Coast shall specify, so as to ensure
that Coast's rights in the Collateral are, and will continue to be, superior to
the rights of any such third party. Borrower will keep in full force and effect,
and will comply with all the terms of, any lease of real property where any of
the Collateral now or in the future may be located.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly reflect the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.
6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law (including appropriate extensions), and Borrower
has timely paid, and will timely pay, all foreign, federal, state and local
taxes, assessments, deposits and contributions now or in the future owed by
Borrower. Borrower may, however, defer payment of any contested taxes, provided
that Borrower (i) in good faith contests Borrower's obligation to pay the taxes
by appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Coast in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. As of the date hereof, Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result in
additional taxes becoming due and payable by Borrower. Borrower has paid, and
shall continue to pay all amounts necessary to fund all present and future
pension, profit sharing and deferred compensation plans in accordance with their
terms, and Borrower has not and will not withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any such plan which could result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency. Borrower shall, at all times,
utilize the services of an outside payroll service providing for the automatic
deposit of all payroll taxes payable by Borrower.
6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, the Fair Labor Standards Act, and those relating to Borrower's ownership of
real or personal property, the conduct and licensing of Borrower's business, and
environmental matters.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material
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Adverse Effect. Borrower will promptly inform Coast in writing of any claim,
proceeding, litigation or investigation in the future threatened or instituted
by or against Borrower involving an amount set forth on the Schedule.
6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
7. RECEIVABLES.
7.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business. Borrower
shall, as soon as practicable, and in a prompt and timely manner, provide
written reports to Coast in for and substance satisfactory to Coast detailing
the actual or estimated amount and timing of credits, reductions, rebates and
refunds that are not currently reflected in reported Receivables but which
Borrower anticipates will be due or available to customers on account of sales
of upgraded software, product improvements and similar circumstances.
7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and endorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast via facsimile, unless otherwise directed by Coast, at such
locations and at such intervals as Coast may request, transaction reports and
loan requests, schedules of Receivables, and schedules of collections, all on
Coast's standard forms; PROVIDED, HOWEVER, that Borrower's failure to execute
and deliver the same shall not affect or limit Coast's security interest and
other rights in all of Borrower's Receivables, nor shall Coast's failure to
advance or lend against a specific Receivable affect or limit Coast's security
interest and other rights therein. Loan requests received after 10:30 A.M. Los
Angeles, California time, will not be considered by Coast until the next
Business Day. Together with each such schedule, or later if requested by Coast,
Borrower shall furnish Coast with copies (or, at Coast's request, originals) of
all contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Coast an aged accounts receivable trial balance
in such form and at such intervals as Coast shall request. In addition, Borrower
shall deliver to Coast the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, upon receipt thereof and in the same form as received, with all
necessary endorsements, all of which shall be with recourse. Borrower shall also
provide Coast with copies of all credit memos as and when requested by Coast.
7.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until an Event of Default has occurred. Borrower
shall hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Coast may, in its discretion, require that all proceeds of Collateral be
deposited by Borrower into a lockbox account, or such other "blocked account" as
Coast may specify, pursuant to a blocked account agreement in such form as Coast
may specify. Coast or its designee may, at any time, notify Account Debtors that
Coast has been granted a security interest in the Receivables.
7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not
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commingle proceeds of Collateral with any of Borrower's other funds or property,
but will hold such proceeds separate and apart from such other funds and
property and in an express trust for Coast. Nothing in this Section limits the
restrictions on disposition of Collateral set forth elsewhere in this Agreement.
7.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (a) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (b) no Default or
Event of Default has occurred and is continuing; and (c) taking into account all
such discounts settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit. Coast may, at any time after an Event of Default has
occurred and is continuing, settle or adjust disputes or claims directly with
Account Debtors for amounts and upon terms which Coast considers advisable in
its reasonable credit judgment and, in all cases, Coast shall credit Borrower's
Loan account with only the net amounts received by Coast in payment of any
Receivables.
7.7 RETURNS. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after an Event of Default has
occurred and is continuing, Borrower shall (a) hold the returned Inventory in
trust for Coast, (b) segregate all returned Inventory from all of Borrower's
other property, (c) conspicuously label the returned Inventory as subject to
Coast's security interest, and (d) immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.
7.8 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or such other name as Coast may choose. Provided, however, Coast shall
not use its own name unless an Event of Default has occurred and is continuing
or if Coast has notified the persons obligated on account of Receivables or
General Intangibles as permitted in Section 10.2 of this Loan and Security
Agreement.
7.9 NO LIABILITY. Coast shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own gross negligence or willful misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER.
8.1 FINANCIAL AND OTHER. Borrower shall at all times comply with the
financial and other covenants set forth in the Schedule.
8.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lender's loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than the amount set forth in Section 8 of the
Schedule, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Coast copies of all reports made to insurance companies.
8.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in Section
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8 of the Schedule, and such other written reports with respect to Borrower
(including budgets, sales projections, operating plans and other financial
documentation), as Coast shall from time to time reasonably specify subject to
limitations of applicable federal and state securities laws.
8.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but not
less frequently than quarterly and on one (1) Business Day's notice, Coast, or
its agents, shall have the right to perform Audits. Coast shall take reasonable
steps to keep confidential all confidential information obtained in any Audit,
but Coast shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The Audits shall be at Borrower's expense and the charge for the Audits
shall be Seven Hundred Fifty Dollars ($750) per person per day (or such higher
amount as shall represent Coast's then current standard charge for the same),
plus reasonable out-of-pocket expenses. The Audits performed by Coast at
Borrower's expense may be performed on a quarterly basis; provided, however,
Coast may conduct additional or more frequent Audits at Borrower's expense if
Coast, in its sole discretion, reasonably and in good faith, determines the same
to be necessary. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first notifying Coast of the
same and obtaining the written agreement from such accounting firm, service
bureau or other third party to give Coast the same rights with respect to access
to books and records and related rights as Coast has under this Loan Agreement.
8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written
consent, do any of the following:
(a) merge or consolidate with another entity, except in a
transaction in which (i) the owners of the Borrower hold at least twenty percent
(20%) of the ownership interest in the surviving entity immediately after such
merger or consolidation, and (ii) the Borrower is the surviving entity;
(b) acquire any assets, except (i) in the ordinary course of
business, or (ii) in a transaction or a series of transactions not involving the
payment of an aggregate amount in excess of the amount set forth in Section 8 of
the Schedule;
(c) enter into any other transaction outside the ordinary course of
business which Coast, in its good faith judgment believes will pose a
substantial risk of a Material Adverse Effect;
(d) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
(e) store any Inventory or other Collateral with any warehouseman or
other third party. Provided, however, Borrower may allow samples, demos and
promotional items to be provided to sales personnel, and temporarily to selected
distributors and customers provided that the aggregate cost value shall not
exceed One Million Dollars ($1,000,000), the identity, location and value of
such items of Inventory are regularly and timely reported to Coast and the same
are excluded from determining Eligible Inventory;
(f) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(g) make any loans of any money or other assets, except (i) advances
to customers or suppliers in the ordinary course of business, (ii) travel
advances, employee relocation loans and other employee loans and advances in the
ordinary course of business, and (iii) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;
(h) incur any debts, outside the ordinary course of business, which
would have a Material Adverse Effect;
(i) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(j) pay or declare any dividends or distributions on the ownership
interests in Borrower (except for dividends or distributions payable solely in
stock form of ownership interests in Borrower);
(k) make any change in Borrower's capital structure which would have
a Material Adverse Effect;
(l) enter into any transaction with any other Borrower hereunder or
any Affiliate (other than intercompany advances not prohibited by this Agreement
or upon terms which Coast, in its sole discretion, deems appropriate and
satisfactory); or
(m) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions
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of this Section are only permitted if no Default or Event of Default is
continuing or would occur as a result of such transaction.
8.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
8.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
9. TERM.
9.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than ninety (90) days prior to the Maturity Date or the next
Renewal Date, that such party elects to terminate this Agreement effective on
the Maturity Date or such next Renewal Date. If and every time this Agreement is
renewed under this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the
amount shown in Section 3 of the Schedule. The Renewal Fee shall be due and
payable on each Renewal Date and thereafter shall bear interest at a rate equal
to the rate applicable to the Receivable Loans.
9.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.
9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Coast's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of Coast, Coast may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Coast, nor shall any such
termination relieve Borrower of any Obligation to Coast, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Coast shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Coast's security
interests.
10. EVENTS OF DEFAULT AND REMEDIES.
10.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or certificate
made or delivered to Coast by Borrower or any of Borrower's officers, employees
or agents, now or in the future, shall be untrue or misleading and results in a
Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 7.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants (if
any) set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
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(f) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within five (5) Business Days after the
date due; or
(g) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within ten (10) days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower or any Affiliate of Borrower breaches any material
contract or obligation, which has or may, in Coast's good faith judgment,
reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower or any guarantor of any of the Obligations; or appointment
of a receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is (i) not
timely controverted, or (ii) not cured by the dismissal thereof within sixty
(60) days after the date commenced; or
(l) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower or any guarantor of any of the Obligations makes any
payment on account of any indebtedness or obligation which has been subordinated
to the Obligations, other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or
(o) Except as permitted under Section 8.5(a), Borrower shall suffer
or experience any Change of Control without Coast's prior written consent, which
consent shall be in the discretion of Coast in the exercise of its reasonable
business judgment; or
(p) Borrower shall generally not pay its debts as they become due,
or Borrower shall conceal, remove or transfer any part of its property, with
intent to hinder, delay or defraud its creditors, or make or suffer any transfer
of any of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or
(q) there shall be any Material Adverse Effect.
Coast may cease making any Loans or extending any credit hereunder during any
period that any of the events listed in this Section 10.1 exist and are
continuing. The cure periods listed above with respect to certain of the items
in this section 10.1 shall not be construed to require Coast to make any
advances unless and until timely cures occur.
10.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following:
(a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose
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Borrower hereby authorizes Coast without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store or remove any of the Collateral, and remain on the premises or cause
a custodian to remain on the premises in exclusive control thereof, without
charge for so long as Coast deems it reasonably necessary in order to complete
the enforcement of its rights under this Agreement or any other agreement;
PROVIDED, HOWEVER, that should Coast seek to take possession of any of the
Collateral by Court process, Borrower hereby irrevocably waives:
(i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession;
(ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and
make it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge. Coast is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Coast's
benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in
its condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto.
All reasonable attorneys' fees, expenses, costs, liabilities and
obligations incurred by Coast (including reasonable attorneys' fees and expenses
incurred in connection with bankruptcy) with respect to the foregoing shall be
due from the Borrower to Coast on demand. Coast may charge the same to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as is applicable to the Receivable Loans. Without limiting any of Coast's
rights and remedies, from and after the occurrence of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an additional
three percent per annum.
10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7) days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least seven (7) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m.
Los Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check or
wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise, but
Coast agrees to exercise the following powers in a commercially reasonable
manner:
(a) Execute on behalf of Borrower any documents that Coast may, in
its sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements;
(b) After an Event of Default has occurred and is continuing,
execute on behalf of Borrower any document exercising, transferring or assigning
any option to purchase, sell or otherwise dispose of or to lease (as lessor or
lessee) any real or personal property which is part of Coast's Collateral or in
which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;
(e) Endorse all checks and other forms of remittances received by
Coast;
(f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;
(g) After an Event of Default has occurred and is continuing, grant
extensions of time to pay, compromise claims and settle Receivables and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to
secure the release of any liens therefor, or both;
(i) After an Event of Default has occurred and is continuing, settle
and adjust, and give releases of, any insurance claim that relates to any of the
Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books
or records belonging to, or relating to, Borrower to give Coast the same rights
of access and other rights with respect thereto as Coast has under this
Agreement; and
(k) Take any action or pay any sum required of Borrower pursuant to
this Agreement and any other present or future agreements.
Coast shall, if requested by Borrower, provide Borrower with information
or summaries of actions that have been taken by Coast from time to time with
respect to the foregoing.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and reasonable attorneys' fees incurred by Coast (including
attorneys' fees and expenses incurred pursuant to bankruptcy) with respect to
the foregoing shall be added to and become part of the Obligations, and shall be
payable on demand. Coast may charge the foregoing to Borrower's loan account and
the foregoing shall thereafter bear interest at the same rate
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applicable to the Receivable Loans. In no event shall Coast's rights under the
foregoing power of attorney or any of Coast's other rights under this Agreement
be deemed to indicate that Coast is in control of the business, management or
properties of Borrower. Borrower shall pay, indemnify, defend, and hold Coast
and each of its officers, directors, employees, counsel, agents, and
attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest
extent permitted by law) from and against any and all claims, demands, suits,
actions, investigations, proceedings, and damages, and all attorneys fees and
disbursements and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and irrespective of whether suit is
brought), at any time asserted against, imposed upon, or incurred by any of them
in connection with or as a result of or related to the execution, delivery,
enforcement, performance, and administration of this Agreement and any other
Loan Documents or the transactions contemplated herein, and with respect to any
investigation, litigation, or proceeding related to this Agreement, any other
Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any act,
omission, event or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities"). Borrower shall have no
obligation to any Indemnified Person hereunder with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
10.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and reasonable attorneys' fees incurred by Coast in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party in equity, under the Code, and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between Coast and Borrower, and all of such rights and remedies are cumulative
and none is exclusive. Exercise or partial exercise by Coast of one or more of
its rights or remedies shall not be deemed an election, nor bar Coast from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Coast to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been indefeasibly paid and
performed.
11. GENERAL PROVISIONS.
11.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three (3) Business Days after
receipt by Coast of immediately available funds, and, for purposes of the
foregoing, any such funds received after 10:30 AM Los Angeles, California time,
on any day shall be deemed received on the next Business Day. Coast shall be
entitled to charge Borrower's account for such three (3) Business Days of
"clearance" or "float" at the rate(s) set forth in Section 3 of the Schedule on
all checks, wire transfers and other items received by Coast, regardless of
whether such three (3) Business Days of "clearance" or "float" actually occur,
and shall be deemed to be the equivalent of charging three (3) Business Days of
interest on such collections. This across-the-board three (3) Business Day
clearance or float charge on all collections is acknowledged by the parties to
constitute an integral aspect of the pricing of Coast's financing of Borrower.
Coast shall not, however, be required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to Coast in its good faith
judgment, and Coast may charge Borrower's loan account for the amount of any
item of payment which is returned to Coast unpaid.
11.2 APPLICATION OF PAYMENTS. Subject to Section 7.5 hereof, all payments
with respect to the Obligations may be applied, and in Coast's sole discretion
reversed and re-applied, to the Obligations, in such order and manner as Coast
shall determine in its sole discretion.
11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to
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Borrower's Loan account, in which event they will bear interest from the date
due to the date paid at the same rate applicable to the Loans.
11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
11.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. Notices to Borrower shall be directed to the attention of the
Chief Financial Officer. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, faxed (at time of
confirmation of transmission), or at the expiration of one (1) Business Day
following delivery to the private delivery service, or two (2) Business Days
following the deposit thereof in the United States mail, with postage prepaid.
11.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
11.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE ARE
NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH
ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE
PARTIES IN CONNECTION HEREWITH.
11.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
11.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 TIME OF ESSENCE.. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast
for all reasonable attorneys' fees (including reasonable attorneys' fees and
expenses incurred pursuant to bankruptcy) and all filing, recording, search,
title insurance, appraisal, audit, and other costs incurred by Coast, pursuant
to, or in connection with, or relating to this Agreement (whether or not a
lawsuit is filed), including, but not limited to, reasonable attorneys' fees and
costs (including reasonable attorneys' fees and expenses incurred pursuant to
bankruptcy) Coast incurs in order to do the following: prepare and negotiate
this Agreement and the documents
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relating to this Agreement; obtain legal advice in connection with this
Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute
actions against, or defend actions by, Account Debtors; commence, intervene in,
or defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect any
of the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Coast's security interest
in, the Collateral; and otherwise represent Coast in any litigation relating to
Borrower. If either Coast or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its costs and attorneys' fees (including reasonable
attorneys' fees and expenses incurred pursuant to bankruptcy), including (but
not limited to) reasonable attorneys' fees and costs incurred in the enforcement
of, execution upon or defense of any order, decree, award or judgment. Borrower
shall also pay Coast's standard charges for returned checks and for wire
transfers, in effect from time to time. All attorneys' fees, costs and charges
(including attorneys' fees and expenses incurred pursuant to bankruptcy) and
other fees, costs and charges to which Coast may be entitled pursuant to this
Agreement may be charged by Coast to Borrower's loan account and shall
thereafter bear interest at the same rate as the Receivable Loans.
11.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; PROVIDED,
HOWEVER, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations. Coast may assign its rights and
delegate its duties hereunder by the sale of assignment or participation
interests, all without the consent of Borrower.
11.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
11.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used
in this Agreement for convenience. Borrower and Coast acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term including,
whenever used in this Agreement, shall mean "including but not limited to". This
Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Coast or Borrower under any rule of construction or
otherwise.
11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
11.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
11.18 REGULATORY FILINGS. A copy of the Loan Documents or portions thereof
may be filed in compliance with the requirements of applicable federal and state
securities laws.
[SIGNATURES ON FOLLOWING PAGE]
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COAST:
COAST BUSINESS CREDIT(R),
a division of Southern Pacific Bank,
a California corporation
By
-----------------------------------
Title:
-------------------------------
BORROWERS:
CYBERGUARD CORPORATION,
A FLORIDA CORPORATION
By
-----------------------------------
Title:
-------------------------------
TRADEWAVE CORPORATION,
A FLORIDA CORPORATION
By
-----------------------------------
Title:
-------------------------------
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22
================================================================================
COAST
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
(CO-BORROWERS)
--------------
BORROWER: CYBERGUARD CORPORATION,
A FLORIDA CORPORATION
ADDRESS: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
BORROWER: TRADEWAVE CORPORATION,
A FLORIDA CORPORATION
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
DATE: DECEMBER __, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit(R), a division of Southern Pacific Bank, and the
above-Borrowers of even date.
================================================================================
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT: Loans in a total amount at any time
outstanding not to exceed the lesser of
a total of Four Million Dollars
($4,000,000.00) at any one time
outstanding (the "Maximum Dollar
Amount"), or the sum of (a), (b) and
(c) below:
(a) Receivable Loans up to eighty
percent (80%) of the amount of
Borrower's Eligible Receivables
(as defined in Section 1 of the
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Agreement). The advance rate on the Receivable
Loans may be increased, in Coast's sole and
exclusive option, to an amount not to exceed
eighty-five percent (85%) of the amount of
Borrower's Eligible Receivables if Coast, in its
sole and absolute discretion, determines that
dilution of Receivables has been and is, in Coast's
opinion, likely to continue at a rate that is five
percent (5%) or less; PLUS
(b) Inventory Loans in an amount not to exceed the
lesser of:
(1) up to thirty percent (30% ) of the value of
Borrower's Eligible Inventory (as defined in
Section 1 of the Agreement), calculated at the
lower of cost or market and determined on a
first-in, first-out basis; or
(2) Three Hundred Thousand Dollars ($300,000.00);
PLUS
(c) Term Loan in the original principal amount not to
exceed Six Hundred Fifty Thousand Dollars
($650,000.00) subject to the following terms:
(1) The Term Loan shall be secured by the
Collateral and also by a cash deposit (the
"Cash Deposit") of Six Hundred and Fifty
Thousand Dollars ($650,000.00) with Coast. The
Term Loan balance to the extent secured by the
Cash Deposit existing from time to time (the
"Cash-Backed Term Loan") shall be payable on
an interest only basis at the rate and in the
manner provided in Section 3.1 of this
Agreement. The Cash Backed Term Loan shall be
evidenced by that certain Secured Promissory
Note #1 of even date herewith (the "Term Note
#1").
(2) Coast shall, at any time and from time to
time, release and return to Borrower any or
all of the Cash Deposit subject to the terms
and conditions hereinafter set forth in this
subsection 2.1(c)(2). If Borrower requests
Coast to release any or all of the Cash
Deposit, Borrower must request Coast to
arrange for an appraisal of Borrower's
Machinery and Equipment. All costs, expenses
and fees of the appraisal shall be paid by or
on behalf of Borrower. If a request for an
appraisal is made by or on behalf of Borrower,
Coast will promptly retain one or more
appraisers who, in Coast's sole and absolute
judgment, are well qualified and are available
to appraise the types of Machinery and
Equipment that are to be appraised. If Coast
is furnished with such an appraisal and, after
review of the same, concludes, in its sole and
absolute discretion, that (a) the appraiser
and the appraisal report (including the
supporting work product) appear reliable, and
(b) that the aggregate value of Coast's
interest in all Collateral (exclusive of the
amount of the Cash
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CREDIT COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
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Deposit proposed to be released to
Borrower) is more than adequate to
cover then-current and anticipated
Obligations of Borrower to Coast,
Coast will release to Borrower all or
such portion of the Cash Deposit equal
to the LESSER of (i) the entire Cash
Deposit or (ii) eighty percent (80%)
of the forced liquidation value of the
Machinery and Equipment (owned by
Borrower and free and clear of liens
and security interests [other than
Coast]), as indicated in the
appraisal. If the Cash Deposit is
returned in whole or in part to
Borrower, the principal balance of
Cash Backed Term Loan shall be reduced
by the amount of Cash Deposit returned
to Borrower and Term Note #1 shall be
canceled or amended and restated, as
the case may be, to reflect the
remaining principal balance, if any,
due thereunder (after crediting the
return of the Cash Deposit against the
then-outstanding obligations due under
Term Note #1).
(3) The principal balance of the Term
Loan in excess of the Cash Deposit
(assuming all or some of the Cash
Deposit is released to Borrower) shall
be evidenced by that certain Secured
Term Note #2 ("Term Note #2") which
will be in form substantially the same
as Term Note #1 except that Term Note
#2 shall be repayable as to principal
in equal monthly installments based on
a thirty-six (36) month amortization
rate with the monthly principal
installments commencing on the last
day of the first full calendar month
following release of the Cash Deposit
(or portions thereof) and the
execution and delivery of Term Note
#2. Interest on Term Note #2 shall
accrue at the rate and be payable in
the manner provided in Section 3.1 of
the Loan and Security Agreement.
(4) The outstanding balance of the
Term Loan (as evidenced by Term Note
#1 and, if applicable, Term Note #2)
including all principal, interest, and
other charges thereon or related
thereto, shall be fully due and
payable on the earlier of (a) November
30, 2000, (b) the Maturity Date as
provided in Section 9.1 of the Loan
and Security Agreement, or (c) the
effective date of termination as
provided in Section 9.2 of the Loan
and Security Agreement. The automatic
renewal provided in Section 9.1 of the
Loan and Security Agreement shall not
be applicable to extend the due date
of the Term Loan beyond November 30,
2000.
(5) The Cash Deposit maintained
at Coast relating to the Term Loan
shall accrue interest for the benefit
of Borrower at a per annum rate of
three percent (3%) below the Prime
rate.
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CREDIT COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
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SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus 2.0%
per annum, calculated on the basis of a
360-day year for the actual number of days
elapsed. The interest rate applicable to
all Loans shall be adjusted monthly as of
the first day of each month, and the
interest to be charged for each month shall
be based on the highest Prime Rate in
effect during the prior month, but in no
event shall the rate of interest charged on
any Loans in any month be less than a per
annum rate equal to the Prime Rate plus
.75% per annum.
Borrower shall be eligible for a .25%
reduction of interest rate for each One
Million Dollar ($1,000,000.00) cash deposit
with Coast up to Four Million Dollars
($4,000,000.00). No further reduction of
interest rate shall be available for cash
deposits with Coast in excess of Four
Million Dollars ($4,000,000.00). Such cash
deposits shall earn interest at a rate
equal to the Prime Rate minus 3.0% per
annum. The Cash Deposit made by Borrower
with Coast as collateral for the Term Loan
shall not apply towards the reduction of
interest rate as contemplated herein.
If the EBT (as defined in Section 1 of the
Agreement) of Borrower is One Hundred and
Fifty Thousand Dollars ($150,000.00) or
more per quarter for two (2) consecutive
quarters, calculated in accordance with
generally accepted accounting principals,
consistently applied, the interest rate
shall thereafter be reduced permanently to
Prime Rate plus 1.75% per annum.
Notwithstanding anything contained in the
Loan and Security Agreement or this
Schedule to the contrary, the daily rate of
interest charged on all loans shall in no
event be less than eight and one-half
percent (8.5%) per annum.
SECTION 3.1 - MINIMUM MONTHLY
INTEREST: Based on minimum daily outstanding loan
balance of One Million Dollars
($1,000,000.00) per month (including the
Term Loan).
SECTION 3.2 - LOAN ORIGINATION
FEE: Forty Thousand Dollars ($40,000.00), such
amount being fully earned on the Closing
Date, and payable Thirteen Thousand Three
Hundred Thirty Four Dollars ($13,334.00) on
the Closing Date and Thirteen Thousand
Three Hundred and Thirty Three Dollars
($13,333.00) on the first anniversary of
the Closing Date and Thirteen Thousand
Three Hundred and Thirty Three Dollars
($13,333.00) on the second anniversary of
the Closing Date.
SECTION 3.2 - FACILITY FEE: $2,500.00, per quarter, payable at the
beginning of each period, prorated for any
partial quarter at the beginning of the
term of this Agreement.
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CREDIT COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
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SECTION 9.1 - RENEWAL FEE: 0.5% of the Maximum Dollar Amount per year
for each year subsequent to the Maturity
Date.
SECTION 9.2 - EARLY TERMINATION
FEE: An amount equal to three percent (3%) of
the Maximum Dollar Amount (as defined in
the Schedule), if termination occurs on or
before the first anniversary of the
effective date of this Agreement; two
percent (2%) of the Maximum Dollar Amount,
if termination occurs after the first
anniversary and on or before the second
anniversary of the effective date of this
Agreement; and one percent (1%) of the
Maximum Dollar Amount, if termination
occurs after the second anniversary and on
or before the third anniversary of the
effective date of this Agreement. If the
term of the Agreement is extended pursuant
to Section 9.1 of the Agreement, the early
termination fee shall thereafter remain at
one percent (1%) of the Maximum Dollar
Amount.
================================================================================
SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.2 - MINIMUM
AVAILABILITY: Borrower shall have minimum borrowing
availability immediately following the
initial funding in an amount of not less
than Two Million Dollars ($2,000,000.00).
SECTION 5.12 - OTHER DOCUMENTS
AND AGREEMENTS: At or prior to Closing, Borrower shall
provide or Coast shall have received, in
form and content acceptable to Coast, such
other and further Loan Documents,
agreements and other papers and such other
and further actions shall be taken as
specified by Coast to carry out the intent
and purposes of this Agreement and to
grant, perfect and protect the rights and
interests of Coast as contemplated herein.
================================================================================
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.2 - PRIOR NAMES OF
BORROWER: ▇▇▇▇▇▇ Computer Systems Corporation, Trade
VPI, Night Hawk, CyberGuard.
SECTION 6.2 - PRIOR TRADE NAMES
OF BORROWER: Trade VPI; Night Hawk; CyberGuard.
SECTION 6.2 - EXISTING TRADE NAMES
OF BORROWER: TradeWave; ▇▇▇▇▇▇ Computer Systems
Corporation.
SECTION 6.3 - OTHER LOCATIONS AND
ADDRESSES: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
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CREDIT COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
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SECTION 6.10 - MATERIAL ADVERSE
LITIGATION: None.
SECTION 6.10 - FUTURE CLAIMS AND
LITIGATION: Borrower will promptly inform Coast in
writing of any claim, proceeding,
litigation or investigation in the
future threatened or instituted by or
against Borrower involving any single
claim of Fifty Thousand Dollars
($50,000.00) or more, or involving One
Hundred Thousand Dollars ($100,000.00)
or more in the aggregate.
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
SECTION 8.1 - OTHER PROVISIONS: 1. No accounts payable shall be over
ninety (90) days past invoice date at
funding unless approved by Coast.
2. All applicable taxes shall be
current at funding and on an going
forward basis.
3. Coast shall, at all times, have a
perfected security interest in all
presently-owned and after-acquired
tangible and intangible assets and
interests of Borrower, wherever
located, including, without limitation,
accounts receivable, inventory,
machinery, equipment, patents,
copyrights, contracts and intellectual
property (including, without
limitation, patents, copyrights and
intellectual property relating to
Borrower's Firewall Software and in
those intangible assets relating to the
generation of accounts receivable).
Except for Permitted Liens, Coast's
security interests shall be senior in
priority to all other liens and
security interests.
4. All provisions in OEM authorization
agreements relating to ▇▇▇▇▇▇▇▇, rights
of setoff, credits, returns, deductions
and similar provisions shall be subject
to review and must be acceptable to
Coast in its good faith judgment as to
whether there is a substantial risk of
a Material Adverse Effect or the
Collateral.
5. A blocked account, or such other
arrangement specified by and acceptable
to Coast shall be utilized for the
collection of the Borrower's
Receivables and all other Collateral.
Such arrangements shall be established
prior to funding.
6. A Landlord's Waiver and similar
agreements in form and content
specified or approved by Coast shall be
obtained with respect to Borrower's
leased facilities located at ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, and ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ and any other
facility designated by Coast.
7. Coast shall perform background
investigations on all key officers of
Borrower and the same must be
satisfactory to Coast. Coast shall
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CREDIT COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
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assume no duty to Borrower or risk on
account of information discovered in
the course of such investigations.
8. Borrower shall maintain a minimum
ongoing Tangible Net Worth of not less
than Five Million Dollars
($5,000,000.00) on a consolidated
basis.
9. The transfers of funds and
intercompany transactions by and among
Borrowers and Affiliates shall be
included in budgets and schedules
provided to Coast on a quarterly or
more frequent basis. Such budgets and
schedules shall contain such
information and data to enable Coast to
evaluate the same. All such budgets and
schedules, which relate to intercompany
funds transfers and transactions, shall
be subject to the prior review and
approval of Coast before the same are
implemented.
10. In no event shall the aggregate
outstanding Receivables with respect to
which the Account Debtors are customers
of Borrower located outside of the
United States, exceed fifty percent
(50%) of all Borrower's Receivables at
any point in time.
11. Borrower shall provide Coast with
▇▇▇▇▇▇▇▇, statements, invoices, or
other documentation as required by
Coast, following the sale of upgraded
software and other products, reflecting
the net amount of any credits, rebates,
allowances and similar items that are
then or which are expected to be owing
to or will be entitlements of customers
where the effect of the same will be to
reduce the net amounts that will be
collected from or paid by customers and
which may not otherwise be clearly
reflected in reports of Receivables.
SECTION 8.2 - INSURANCE: Subject to the limitations set forth in
Section 8.2 of the Agreement, Coast
shall release to Borrower insurance
proceeds with respect to Equipment
totaling less than One Hundred Thousand
Dollars ($100,000.00).
SECTION 8.3 - REPORTING: Borrower shall provide Coast with the
following:
1. Monthly Receivable agings, aged by
invoice date, and by due date,
within ten (10) days after the end
of each month.
2. Monthly accounts payable agings,
aged by invoice date, and
outstanding or held check registers
within ten (10) days after the end
of each month.
3. Monthly internally prepared
financial statements, as soon as
available, and in any event within
thirty (30) days after the end of
each month.
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CREDIT COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
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4. Quarterly internally prepared
consolidated and consolidating
financial statements, as soon as
available, and in any event within
forty-five (45) days after the end
of each fiscal quarter of Borrower.
5. Quarterly customer lists, including
customer name, address, and phone
number.
6. Annual consolidated and
consolidating financial statements,
as soon as available, and in any
event within ninety (90) days
following the end of Borrower's
fiscal year, containing the
unqualified opinion of, and
certified by, an independent
certified public accountant
acceptable to Coast.
7. Monthly EDP perpetual inventory
reports to be in place by March 31,
1998.
8. Monthly inventory physical counts as
soon as available, all within ten
(10) days after the end of each
month. Monthly inventory reports
pursuant to this subsection 8 and
the immediately preceding subsection
7 shall include such information as
Coast may reasonably require to
ascertain the nature, composition
and mix of inventory on hand.
9. Monthly reconciliation of the
general ledger to the physical
inventory count as soon as
available, all within ten (10) days
after the end of each month.
10. All filings by Borrower with the
Securities and Exchange Commission,
all within ten (10) days after the
same have been filed. All such
filings shall be made as and when
due (including any appropriate
extensions).
11. Monthly reports listing of all
copyrights, patents and patent
applications, trademarks and
trademark registrations and any and
other intellectual property owned or
controlled by Borrower or licensed
to Borrower, together with a summary
description and full information
with respect to filings,
registrations, renewals, licensing
by or to Borrower, and the amount of
Receivables related to the foregoing
which would not, under the criteria
set forth in the definitions of the
Agreement, constitute Eligible
Receivables. Such reports shall be
provided to Coast as soon as
available, all within ten (10) days
after the end of each month, and
shall be certified, under penalty of
perjury, by an officer of Borrower
that the information contained in
such reports is true and correct.
SECTION 8.5 - NEGATIVE COVENANTS
(ACQUIRED ASSETS): Borrower may not purchase assets
outside the ordinary course of
business for purchase price of or in
excess of Seventy Five Thousand
Dollars ($75,000.00) without the
consent of Coast.
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CREDIT COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
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SECTION 8.7 FURTHER ASSURANCES
(INTELLECTUAL PROPERTY
RIGHTS REGISTRATIONS): Borrower agrees that from time to
time, at the expense of Borrower,
Borrower will promptly execute,
acknowledge and deliver, and file,
register and record in the proper
filing and recording places, all
instruments and documents, and take
all further action that may be
necessary or desirable, or that
Coast may reasonably request in
order to perfect and protect the
rights and interests of Borrower and
the liens and security interests of
Coast in and to such copyrights,
patents and patent applications,
trademarks and trademark
registrations and any and other
intellectual property owned or
controlled by Borrower or licensed
to Borrower.
SECTION 9 - TERM
SECTION 9.1 - MATURITY DATE: Three (3) years from the Closing
Date, subject to automatic renewal
as provided in Section 9.1 of the
Agreement, and early termination as
provided in Section 9.2 of the
Agreement.
[SIGNATURES ON FOLLOWING PAGE]
29
31
COAST:
COAST BUSINESS CREDIT(R),
a division of Southern Pacific Bank,
a California corporation
By
----------------------------------
Title:
------------------------------
BORROWERS:
CYBERGUARD CORPORATION,
A FLORIDA CORPORATION
By
----------------------------------
Title:
------------------------------
TRADEWAVE CORPORATION,
A FLORIDA CORPORATION
By
----------------------------------
Title:
------------------------------
30
