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EXHIBIT 10.18
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as
of January 8, 1998, by and between SILICON VALLEY BANK, a California-chartered
bank ("Bank") with its principal place of business at 0000 Xxxxxx Xxxxx, Xxxxx
Xxxxx, Xxxxxxxxxx 00000 and with a loan production office located at One
Central Plaza, 00000 Xxxxxxxxx Xxxx, Xxxxx 0000, Xxxxxxxxx, Xxxxxxxx 00000 and
VISUAL NETWORKS, INC., a Delaware corporation ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the
following terms shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means an advance under the
Committed Revolving Line.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person
that controls or is controlled by or is under common control with such Person,
and each of such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all reasonable costs or
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and enforcement
of the Loan Documents; and Bank's reasonable attorneys' fees and
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expenses incurred in amending, enforcing or defending the Loan Documents,
whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" has the meaning set forth in Section
2.1 hereof.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California or the State of
Maryland are authorized or required to close.
"Cash Flow" means as to the Borrower, for any period
of determination thereof, the sum of (i) the net income (or loss) after taxes,
plus (ii) the aggregate amount of depreciation and interest expense, all
calculated in accordance with GAAP, minus capitalized software expense.
"Closing Date" means the date of this Agreement.
"Code" means the Uniform Commercial Code, as the same
may, from time to time, be in effect in the State of Maryland.
"Collateral" means the property described on Exhibit
A attached hereto.
"Committed Revolving Line" means Seven Million
Dollars ($7,000,000).
"Contingent Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determined amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good
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faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Current Liabilities" means, as of any applicable
date, all amounts that should, in accordance with GAAP, be included as current
liabilities on the balance sheet of Borrower, as at such date, plus, to the
extent not already included therein, all outstanding Credit Extensions made
under this Agreement, including all Indebtedness that is payable upon demand or
within one year from the date of determination thereof unless such Indebtedness
is renewable or extendable at the option of Borrower to a date more than one
year from the date of determination, but excluding Subordinated Debt and
deferred revenues.
"Daily Balance" means the amount of the Obligations
owed at the end of a given day.
"Eligible Accounts" means those Accounts that arise
in the ordinary course of Borrower's business that comply with all of
Borrower's representations and warranties to Bank set forth in Section 5.4;
provided, that standards of eligibility may be fixed and revised from time to
time by Bank in Bank's reasonable judgment and upon prior notification thereof
to Borrower in accordance with the provisions hereof. Unless otherwise agreed
to by Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed
to pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor,
fifty percent (50%) of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date;
(c) Accounts with respect to which the account
debtor is an officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are
placed on consignment, guaranteed sale, sale or return, sale on approval, xxxx
and hold, or other terms by reason of which the payment by the account debtor
may be conditional;
(e) Accounts with respect to which the account
debtor is an Affiliate (other than by virtue of being directly or indirectly
under common ownership or control with Borrower) of Borrower;
(f) Accounts with respect to which the account
debtor does not have its principal place of business in the United States and
Accounts arising from products shipped to or services provided to branches or
offices located in the United States of any account debtor that does not have
its principal place of business in the United States;
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(g) Accounts with respect to which the account
debtor is a federal, state, or local governmental entity or any department,
agency, or instrumentality thereof;
(h) Accounts with respect to which Borrower is
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower, but only to the extent of any amounts owing to the account
debtor against amounts owed to Borrower;
(i) Accounts with respect to an account debtor,
including Subsidiaries and Affiliates, whose total obligations to Borrower
exceed twenty-five percent (25%) of all Accounts, except with respect to
Sprint/United Management Company, AT&T Corp. and MCI Telecommunications Corp.,
as to which the percentage shall be thirty five percent (35%), to the extent
such obligations exceed the aforementioned percentage, except as approved in
writing by Bank;
(j) Accounts with respect to which the account
debtor disputes liability or makes any claim with respect thereto as to which
Bank believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(k) Accounts the collection of which Bank
reasonably determines to be doubtful.
"ERISA" means the Employment Retirement Income
Security Act of 1974, as amended from time to time, and the regulations
promulgated thereunder.
"GAAP" means generally accepted accounting principles
as in effect from time to time.
"Indebtedness" means (a) all indebtedness for
borrowed money or the deferred purchase price of property or services,
including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes,
bonds, debentures or similar instruments (excluding stock which in accordance
with GAAP should be classified as "preferred stock" of Borrower), (c) all
capital lease obligations and (d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work
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in process and finished products intended for sale or lease or to be furnished
under a contract of service, of every kind and description now or at any time
hereafter owned by or in the custody or possession, actual or constructive, of
Borrower, including such inventory as is temporarily out of its custody or
possession or in transit and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing and any documents of title representing any of the
above, and Borrower's Books relating to any of the foregoing.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated thereunder.
"Letter of Credit" and Letters of Credit" have the
meanings set forth in Section 2.2 hereof.
"Lien" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
the Revolving Promissory Note, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse
effect (i) on the value of the Collateral (taken as a whole) or the perfection
or priority of Bank's security interest on the Collateral (taken as a whole),
(ii) on the ability of Borrower to repay the Obligations or otherwise perform
its obligations under the Loan Documents, (iii) resulting from any circumstance
or event of whatever nature (including any adverse determination in any
litigation) which does, or could reasonably be expected to cause an Event of
Default.
"Negotiable Collateral" means all of Borrower's
present and future letters of credit of which it is a beneficiary, notes,
drafts, instruments, securities, documents of title, and chattel paper, and
Borrower's Books relating to any of the foregoing.
"Note" means the Revolving Promissory Note and
"Notes" mean collectively the Revolving Promissory Note and any other note now
or hereafter issued to evidence the Obligations.
"Obligations" means all debt, principal, interest,
Bank Expenses and other amounts owed to Bank by Borrower pursuant to the Note,
this Agreement or any other agreement with Bank, whether absolute or
contingent, due or to become due, now existing or hereafter arising, including
any interest that accrues after the commencement of an Insolvency Proceeding
and
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including any debt, liability, or obligation owing from Borrower to others that
Bank may have obtained by assignment or otherwise.
"Payment Date" means the fifth calendar day of each
month.
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay
to Bank pursuant to the terms and provisions of any instrument, or agreement
now or hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in
the ordinary course of business;
(e) Indebtedness secured by Permitted Liens;
(f) Warranty and product support obligations
which arise in the ordinary course and conduct of Borrower's business;
(g) Indebtedness in respect of taxes permitted
under Section 6.5; and
(h) Other Indebtedness, not otherwise permitted
by Section 7.4 not exceeding Fifty Thousand Dollars ($50,000) in the aggregate
outstanding at any time.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule;
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the date
of creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Xxxxx'x Investors Service, Inc., and
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Bank;
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(c) Investments pursuant to or arising under
currency agreements or interest rate agreements entered into in the ordinary
course of business; and
(d) Loans or advances to officers and employees
approved by the Board of Directors in an aggregate amount not in excess of
Twenty Thousand Dollars ($20,000) outstanding at any time.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in
good faith by appropriate proceedings, provided the same have no priority over
any of Bank's security interests;
(c) Liens (i) upon or in any equipment acquired
or held by Borrower or any of its Subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; and
(e) Liens on Equipment leased by Borrower or any
Subsidiary pursuant to an operating lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement).
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
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"Quick Assets" means, as of any applicable date, the
cash, cash equivalents, accounts receivable and investments with maturities of
fewer than ninety (90) days of Borrower all determined in accordance with GAAP.
"Responsible Officer" means each of the Chief
Executive Officer, the President, the Treasurer, the Chief Financial Officer,
the Vice President of Finance and the Controller of Borrower.
"Revolving Maturity Date" means January 5, 1999.
"Revolving Promissory Note" means that certain
Revolving Promissory Note of even date herewith in substantially the form of
Exhibit E hereto in the maximum principal amount of Seven Million Dollars
($7,000,000) from Borrower in favor of Bank, together with all renewals,
amendments, modifications and substitutions therefore.
"Schedule" means the schedule of exceptions attached
hereto.
"Solvent" with respect to any Person, means that (i)
the fair value of all of such Person's properties and assets exceed the total
amount of its Indebtedness; (ii) it is able to pay its debts as they mature;
(iii) it does not have unreasonably small capital for the business in which it
is engaged or for any business or transaction in which it is about to engage;
and (iv) it is not "insolvent" as such term is defined in Section 101(31) of
Title 11 of the United States Code, 11. U.S.C. Section 101, et seq.
"Subordinated Debt" means any debt incurred by
Borrower that is subordinated to the debt owing by Borrower to Bank on terms
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in
which (i) any general partnership interest or (ii) more than fifty percent
(50%) of the stock of which by the terms thereof ordinary voting power to elect
the Board of Directors, managers or trustees of the entity shall, at the time
as of which any determination is being made, be owned by Borrower, either
directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which
the amount thereof shall be determined, the consolidated total assets of
Borrower and its Subsidiaries minus, without duplication, (i) the sum of any
amounts attributable to (a) goodwill, (b) intangible items such as unamortized
debt discount and expense, patents, trade and service marks and names,
copyrights and research and development expenses except prepaid expenses, and
(c) all reserves not already deducted from assets, and (ii) Total Liabilities.
"Total Liabilities" means at any date as of which the
amount thereof shall be determined, all obligations that should, in accordance
with GAAP be classified as liabilities on the
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consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt.
1.2 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations made hereunder shall be made in accordance with GAAP. When used
herein, the terms "financial statements" shall include the notes and schedules
thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Advances. Subject to and upon the terms and
conditions of this Agreement, Bank agrees to make Advances to Borrower and
issue Letters of Credit, in an aggregate amount not to exceed the Committed
Revolving Line or the Borrowing Base, whichever is less. For purposes of this
Agreement, "Borrowing Base" shall mean an amount equal to seventy five percent
(75%) of Eligible Accounts, minus the face amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) as determined by
Bank with reference to the most recent Borrowing Base Certificate delivered by
Borrower. Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time
during the term of this Agreement.
On the Closing Date, Borrower shall execute and deliver to Bank the
Revolving Promissory Note.
Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Washington, D.C.
time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto sent to Bank by confirmed facsimile
transmission. Bank is authorized to make Advances under this Agreement, based
upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the
amount of Advances made under this Section 2.1 to Borrower's deposit account.
The Committed Revolving Line shall terminate on the Revolving Maturity
Date, at which time all Advances under this Section 2.1 and other amounts due
under this Agreement (except as otherwise expressly specified herein) shall be
immediately due and payable.
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2.2 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued letters of credit (each a
"Letter of Credit" and collectively, the "Letters of Credit") for the account
of Borrower in an aggregate face amount not to exceed (i) the lesser of (a) the
Committed Revolving Line, minus the face amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) or (b) the
Borrowing Base, minus (ii) the then outstanding principal balance of the
Advances, provided that the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) shall not in any case
exceed One Million Dollars ($1,000,000). Each such letter of credit shall have
an expiry date no later than ninety (90) days after the Revolving Maturity
Date, provided that Borrower's letter of credit reimbursement obligation shall
be secured by cash on terms acceptable to Bank at any time after the Revolving
Maturity Date if the term of this Agreement is not extended by Bank. All such
Letters of Credit shall be, in form and substance, acceptable to Bank in its
sole discretion and shall be subject to the terms and conditions of Bank's form
of application and letter of credit agreement which shall be executed and
delivered to Bank not less than two (2) Business Days prior to the date on
which a Letter of Credit is requested to be opened. In the event of any
conflict between the provisions of this Agreement and the provisions of any
form of application and letter of credit agreement, the provisions of this
Agreement shall prevail and control unless otherwise expressly provided in the
such application and letter of credit agreement. The application and letter of
credit agreement shall specify, among other things: (i) the name and address of
the beneficiary of the Letter of Credit, (ii) the amount of the Letter of
Credit, (iii) whether the Letter of Credit is to be revocable or irrevocable,
(iv) the Business Day on which the Letter of Credit is to be opened and the
date on which the Letter of Credit is to expire, (v) the terms of payment of
any draft or drafts which may be drawn under the Letter of Credit and (vi) any
other terms or provisions Borrower desires to be contained in the Letter of
Credit.
(b) The Obligation of Borrower to immediately
reimburse Bank for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement and such Letters of Credit, under all
circumstances whatsoever. Borrower shall indemnify, defend and hold Bank
harmless from any loss, cost, expense or liability, including, without
limitation, reasonable attorneys' fees, arising out of or in connection with
any letters of credit.
(c) Prior to or simultaneously with the opening
of each Letter of Credit, Borrower shall pay to Bank a letter of credit fee in
such an amount as Bank customarily charges in connection with the opening,
negotiation, processing and administration of a letter of credit on the date
such Letter of Credit is opened.
2.3 Letter of Credit Reimbursement; Reserve.
(a) Borrower may request that Bank issue a letter
of credit payable in a currency other than United States Dollars. If a demand
for payment is made under any such letter
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of credit, Bank shall treat such demand as an advance to Borrower of the
equivalent of the amount thereof (plus cable charges) in United States currency
at the then prevailing rate of exchange in San Francisco, California, for sales
of that other currency for cable transfer to the country of which it is the
currency.
(b) Upon the issuance of any letter of credit
payable in a currency other than United States Dollars, Bank shall create a
reserve under the Committed Revolving Line for letters of credit against
fluctuations in currency exchange rates, in an amount equal to twenty percent
(20%) of the face amount of such letter of credit. The amount of such reserve
may be amended by Bank from time to time to account for fluctuations in the
exchange rate. The availability of funds under the Committed Revolving Line
shall be reduced by the amount of such reserve for so long as such letter of
credit remains outstanding.
2.4 Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to Section 2.1 of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or
(ii) the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the
amount of such excess.
2.5 Interest Rates, Payments, and Calculations.
(a) Interest Rate. All Advances shall bear
interest, on the average Daily Balance, at the rate or rates set forth in the
Note.
(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence of an Event of Default, at a rate equal
to five (5) percentage points above the interest rate applicable immediately
prior to the occurrence of the Event of Default.
(c) Payments. Interest under the Note shall be
due and payable on the Payment Date of each month during the term thereof.
Borrower hereby authorizes Bank to debit, and Bank hereby agrees to debit,
Account Number 3300020208 maintained at Bank without notice for payments of
principal and interest due on the Obligations, but with prior notice for any
other amounts owing by Borrower to Bank, provided, however that after the
occurrence of any Event of Default, Borrower authorizes Bank to debit any
accounts of Borrower maintained with Bank. Bank will notify Borrower of all
debits which Bank makes against Borrower's accounts. Any such debits against
Borrower's accounts in no way shall be deemed a set-off. Any interest not paid
when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable
hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest under the
Note shall be increased or decreased effective as of 12:01 a.m. on the day the
Prime Rate is changed, by an amount equal to such change in the Prime Rate.
All interest chargeable under the Loan Documents shall be computed on the basis
of a three hundred sixty (360) day year for the actual number of days elapsed.
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2.6 Crediting Payments. Prior to the occurrence of an
Event of Default, Bank shall credit a wire transfer of funds, check or other
item of payment to such deposit account or Obligation as Borrower specifies.
After the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment shall be immediately applied
to conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 10:00 a.m. Washington, D.C. time
shall be deemed to have been received by Bank as of the opening of business on
the immediately following Business Day. Whenever any payment to Bank under the
Loan Documents would otherwise be due (except by reason of acceleration) on a
date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.7 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Thirty
Thousand Six Hundred Twenty Six Dollars ($30,626), half of which fee has
already been paid and the balance of which fee ($15,313) shall be due on the
Closing Date and once paid shall be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees.
Bank's customary fees and out-of-pocket expenses for Bank's audits of
Borrower's Accounts, and for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by Bank or its
agents, provided that prior to the occurrence of a Default, Borrower shall only
be obligated to pay the expenses associated with one (1) such appraisal or
examinations, during any twelve (12) month period. Bank will keep the results
of any such appraisal or examination confidential in accordance with the
provisions of Section 12.8 hereof.
(c) Bank Expenses. Upon demand from Bank,
including, without limitation, upon the date hereof, all Bank Expenses incurred
through the date hereof, including reasonable attorneys' fees and expenses,
and, after the date hereof, all Bank Expenses, including reasonable attorneys'
fees and expenses, as and when they become due.
2.8 Additional Costs. In case any law, regulation,
treaty or official directive or the interpretation or application thereof by
any court or any governmental authority charged with the administration thereof
or the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the United
States of America or any political subdivision thereof);
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(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement; and
the result of any of the foregoing is to increase the cost to Bank, reduce the
income receivable by Bank or impose any expense upon Bank with respect to any
loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the
amount of such increase in cost, reduction in income or additional expense as
and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.9 Term. Except as otherwise set forth herein, this
Agreement shall become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term ending on the
Revolving Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Advances under this Agreement
immediately and without notice upon the occurrence and during the continuance
of an Event of Default. Notwithstanding termination, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The
obligation of Bank to make the initial Advance is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement;
(b) the Revolving Promissory Note;
(c) a certificate of the Secretary of Borrower
with respect to incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(d) an opinion of Borrower's counsel;
(e) payment of the fees and Bank Expenses then
due specified in Section 2.7 hereof; and
(f) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
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3.2 Conditions Precedent to all Advances. The obligation
of Bank to make each Advance, including the initial Advance, is further subject
to the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained
in Section 5 shall be true and correct in all material respects on and as of
the date of such Payment/Advance Form and on the effective date of each Advance
as though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Advance. The making of
each Advance shall be deemed to be a representation and warranty by Borrower on
the date of such Advance as to the accuracy of the facts referred to in this
Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and
pledges to Bank a continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure prompt payment of
any and all Obligations and in order to secure prompt performance by Borrower
of each of its covenants and duties under the Loan Documents. Except as set
forth in the Schedule, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof. Borrower acknowledges that Bank may place a "hold" on
any Deposit Account pledged as Collateral to secure the Obligations.
4.2 Delivery of Additional Documentation Required.
Borrower shall from time to time execute and deliver to Bank, at the request of
Bank, all Negotiable Collateral, all financing statements and other documents
that Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's
Books and to make copies thereof and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
condition of, or any other matter relating to, the Collateral, provided that
Bank will use reasonable efforts so as not to interfere with Borrower's
business operations.
5. REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and
each Subsidiary is a corporation duly existing and in good standing under the
laws of its state of incorporation and qualified and licensed to do business
in, and is in good standing in, any state in which the conduct of its business
or its ownership of property requires that it be so qualified., except where a
failure to be so qualified could not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution,
delivery, and performance of the Loan Documents are within Borrower's powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Articles of Incorporation or Bylaws,
nor will they constitute an event of default under any material agreement to
which Borrower is a party or by which Borrower is bound. Borrower is not in
default under any agreement to which it is a party or by which it is bound,
which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts
are bona fide existing obligations. The property giving rise to such Eligible
Accounts has been delivered to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor that is included in any Borrowing Base
Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all
material respects of good and marketable quality, free from all material
defects.
5.6 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business under any name other
than that specified on the signature page hereof. The chief executive office
of Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule,
there are no actions or proceedings pending by or against Borrower or any
Subsidiary before any court or administrative agency in which an adverse
decision could have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral. Borrower
does not have knowledge of any such pending or threatened actions or
proceedings.
5.8 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and any Subsidiary
that have been delivered by Borrower to Bank fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has
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not been a material adverse change in the consolidated financial condition of
Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 Solvency. Borrower is Solvent.
5.10 Regulatory Compliance. Borrower and each Subsidiary
has met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from
Borrower's failure to comply with ERISA that is reasonably likely to result in
Borrower's incurring any liability that could have a Material Adverse Effect.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). To the best of Borrower's knowledge,
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. To the best of Borrower's knowledge, Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or
caused to be filed all tax returns required to be filed, or has applied for and
received extensions of the deadline for filing, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith and by appropriate proceedings.
5.13 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.14 Government Consents. To the best of its knowledge,
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings
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with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or
other statement made by Borrower in any certificate or written statement
furnished to Bank contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading in any material respect.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make an Advance hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each
of its Subsidiaries' corporate existence and good standing in its jurisdiction
of incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and
shall cause each Subsidiary to meet, the minimum funding requirements of ERISA
with respect to any employee benefit plans subject to ERISA. Borrower shall
comply, and shall cause each Subsidiary to comply, with all statutes, laws,
ordinances and government rules and regulations to which it is subject,
noncompliance with which could have a Material Adverse Effect.
6.3 Financial Statements, Reports, Certificates.
Borrower shall deliver to Bank: (a) as soon as available, but in any event
within thirty (30) days after the end of each month, a company prepared balance
sheet and income statement covering Borrower's operations during such period,
certified by an officer of Borrower (without any personal liability therefore
other than liability based on fraud or criminal misconduct) reasonably
acceptable to Bank; (b) as soon as available, but in any event within ninety
(90) days after the end of Borrower's fiscal year, audited financial statements
of Borrower prepared in accordance with GAAP, consistently applied, together
with an unqualified opinion on such financial statements of an independent
certified public accounting firm reasonably acceptable to Bank; (c) promptly
upon receipt of notice thereof, a report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more; and (d) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
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Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable and accounts payable.
Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of
Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more frequently than once every twelve (12) months unless an Event
of Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all
Inventory in good and marketable condition, free from all material defects.
Returns and allowances, if any, as between Borrower and its account debtors
shall be on the same basis and in accordance with the usual customary practices
of Borrower, as they exist at the time of the execution and delivery of this
Agreement. Borrower shall promptly notify Bank of all returns and recoveries
and of all disputes and claims, where the return, recovery, dispute or claim
involves more than Fifty Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower will make, and will
cause each Subsidiary to make, timely payment or deposit of all material tax
payments and withholding taxes required of it by applicable laws, including,
but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability,
and local, state, and federal income taxes, and will, upon request, furnish
Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary
has made such payments or deposits; provided that Borrower or a Subsidiary need
not make any payment if the amount or validity of such payment is contested in
good faith by appropriate proceedings and is reserved against (to the extent
required by GAAP) by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, as ordinarily
insured against by other owners in similar businesses conducted in the
locations where Borrower's business is conducted on the date hereof. Borrower
shall also maintain insurance relating to Borrower's ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar to
Borrower's.
(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as reasonably satisfactory
to Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing
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Bank as an additional loss payee thereof as its interests may appear and all
liability insurance policies shall show Bank as an additional insured, and
shall specify that the insurer must give at least twenty (20) days notice to
Bank before canceling its policy for any reason. Borrower shall deliver to
Bank certified copies of such policies of insurance and evidence of the
payments of all premiums therefor. All proceeds payable under any such policy
shall, at the option of Bank, be payable to Bank to be applied on account of
the Obligations.
6.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank.
6.8 Leverage Borrower shall maintain, as of the last day
of each calendar month, a ratio of Total Liabilities, less deferred revenue to
Tangible Net Worth not to exceed the following amounts at the following times:
Period: Maximum Leverage:
------ ----------------
March 31, 1997 through August 31, 1997 2.25 to 1.00;
September 30, 1997 through November 30, 1997 2.00 to 1.00; and
As of the last day of each calendar
month thereafter 1.50 to 1.00.
6.9 Profitability. Borrower shall not suffer a loss for
any fiscal quarter in excess of the following amounts or have a profit of less
than the following amounts, as the case may be, at the following times:
Period Ending: Maximum Loss/ Minimum Profit Permitted:
------------- --------------------------------------
Fiscal Quarter Ending December 31, 1996 ($2,200,000);
Fiscal Year Ending December 31, 1996 ($7,000,000);
Fiscal Quarter Ending March 31, 1997 ($1,400,000);
Fiscal Quarter Ending June 30, 1997 $1;
Fiscal Quarter Ending September 30, 1997 $250,000; and
For Each Fiscal Quarter Thereafter $ 250,000.
6.10 Quick Ratio. Borrower shall maintain, as of the last
day of each calendar month, a ratio of Quick Assets to Current Liabilities, of
at least the following amounts at the following times:
Period: Minimum Quick Ratio:
------ -------------------
March 31 through June 30, 1997 1.25 to 1.0;
July 31, 1997 through March 31, 1998 1.00 to 1.0;
April 30, 1998 through June 30, 1998 1.25 to 1.0; and
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As of the last day of each calendar
month thereafter 1.50 to 1.0.
6.11 Debt Service Coverage Ratio. Borrower will maintain
as of the last day of each fiscal quarter for the four (4) quarter period
ending on that date, a ratio of Cash Flow to the current portion of long term
indebtedness, plus interest expense, equal to not less than 1.50 to 1.00.
6.12 Further Assurances. At any time and from time to
time Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any
Advances, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries; (iii) Transfers of worn-out or
obsolete Equipment made in the ordinary course of business; or (iv) other
Transfers not to exceed Fifty Thousand Dollars ($50,000) in the aggregate.
7.2 Change in Business. Engage in any business, or
permit any of its Subsidiaries to engage in any business, other than the
businesses currently engaged in by Borrower and any business substantially
similar or related thereto (or incidental thereto), or suffer a material change
in Borrower's ownership, management or directors (other than changes due to
death or legal incapacity). Borrower will not, without thirty (30) days prior
written notification to Bank, relocate its chief executive office and will
promptly notify Bank if it receives notice that the lease for its current
location will not be renewed or will be terminated.
7.3 Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization, and Borrower will not acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, unless, (i) Borrower will be the surviving entity,
(ii) no Event of Default has occurred and is continuing, (iii) no Material
Adverse Effect will be caused by such an occurrence, and (iv) Borrower and such
other business organization deliver to Bank such instruments, agreements and
such other documents as Bank may request.
7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
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7.5 Encumbrances. Create, incur, assume or suffer to
exist any Lien with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock in excess of Fifty Thousand Dollars ($50,000) in the
aggregate, provided that at such time no Event of Default has occurred and is
continuing or would exist after giving effect to such payment and no Material
Adverse Effect will be caused by such an occurrence.
7.7 Investments. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries
so to do, other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a nonaffiliated
Person.
7.9 Subordinated Debt. Make any payment in respect of
any Subordinated Debt, or permit any of its Subsidiaries to make any such
payment, except in compliance with the terms of such Subordinated Debt, or
amend any provision contained in any documentation relating to the Subordinated
Debt without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of the
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives
Bank prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or a
company controlled by an "investment company," within the meaning of the
Investment Company Act of 1940, or become principally engaged in, or undertake
as one of its important activities, the business of extending credit for the
purpose of purchasing or carrying margin stock, or use the proceeds of any
Advance for such purpose. Fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, which violation could have a Material
Adverse Effect or a material adverse effect on the Collateral or the priority
of Bank's Lien on the Collateral, or permit any of its Subsidiaries to do any
of the foregoing.
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8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due,
any of the Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation
under Sections 6.7, 6.8, 6.9, 6.10, or 6.11 or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan Documents, or in any
other present or future agreement between Borrower and Bank and as to any
default under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure such default within ten (10) days after
Borrower receives notice thereof or any officer of Borrower becomes aware
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Advances
will be required to be made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a
material impairment of the perfection or priority of Bank's security interest
in the Collateral or of the value of such Collateral which is not covered by
adequate insurance, or (ii) Bank determines, based upon information available
to it and in the exercise of its reasonable judgment, that there is a
reasonable likelihood that Borrower will fail to comply with one or more of the
affirmative covenants set forth in Section 6 during the next succeeding
financial reporting period;
8.4 Attachment. If any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged, bonded over or rescinded
within ten (10) days, or if Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs, or if a judgment or other claim in excess of $50,000 in
the aggregate becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment for an amount in
excess of $50,000 is filed of record with respect to any of Borrower's assets
by the United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten (10) days after Borrower receives notice thereof,
provided that none of the
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foregoing shall constitute an Event of Default where such action or event is
stayed or an adequate bond has been posted pending a good faith contest by
Borrower (provided that no Advances will be required to be made during such
cure period);
8.5 Insolvency. If Borrower is no longer Solvent, or if
an Insolvency Proceeding is commenced by Borrower, or if an Insolvency
Proceeding is commenced against Borrower and is not dismissed or stayed within
thirty (30) days (provided that no Advances will be made prior to the dismissal
of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any
agreement for borrowed money to which Borrower is a party with a third party or
parties resulting in a right by such third party or parties, whether or not
exercised, to accelerate the maturity of any Indebtedness in an amount in
excess of One Hundred Thousand Dollars ($100,000) or that could have a Material
Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the
payment of money in an amount, individually or in the aggregate, of at least
Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material
misrepresentation or material misstatement exists now or hereafter in any
warranty or representation set forth herein or in any certificate delivered to
Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to
enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during
the continuance of an Event of Default, Bank may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement or under any other
agreement between Borrower and Bank;
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(c) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Without notice to or demand upon Borrower,
make such payments and do such acts as Bank considers necessary or reasonable
to protect its security interest in the Collateral. Borrower agrees to
assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain possession of
the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned premises,
Borrower hereby grants Bank a license to enter into possession of such premises
and to occupy the same, without charge, for up to one hundred twenty (120) days
in order to exercise any of Bank's rights or remedies provided herein, at law,
in equity, or otherwise;
(e) Without notice to Borrower set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by
Bank, or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, 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,
in connection with Bank's exercise of its rights under this Section 9.1,
Borrower's rights under all licenses and all franchise agreements shall inure
to Bank's benefit;
(g) Demand that Borrower (i) deposit cash with
Bank in an amount equal to the amount of any Letters of Credit remaining
undrawn, as collateral security for the repayment of any future drawings under
such Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all Letters of Credit fees scheduled to be
paid or payable over the remaining term of the Letters of Credit;
(h) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Bank determines is commercially reasonable (but in any event after
ten (10) days prior notice to Borrower of the date and time of any such sale);
(i) Bank may credit bid and purchase at any
public sale; and
(j) Any deficiency that exists after disposition
of the Collateral as provided above will be paid immediately by Borrower.
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9.2 Power of Attorney. Effective only upon the
occurrence and during the continuance of an Event of Default, Borrower hereby
irrevocably appoints Bank (and any of Bank's designated officers, or employees)
as Borrower's true and lawful attorney to: (a) send requests for verification
of Accounts or notify account debtors of Bank's security interest in the
Accounts; (b) endorse Borrower's name on any checks or other forms of payment
or security that may come into Bank's possession; (c) sign Borrower's name on
any invoice or xxxx of lading relating to any Account, drafts against account
debtors, schedules and assignments of Accounts, verifications of Accounts, and
notices to account debtors; (d) make, settle, and adjust all claims under and
decisions with respect to Borrower's policies of insurance; and (e) settle and
adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable;
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred. The appointment of Bank as Borrower's attorney in
fact, and each and every one of Bank's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid
and performed and Bank's obligation to provide advances hereunder is
terminated.
9.3 Accounts Collection. Effective only upon the
occurrence and during the continuance of an Event of Default, Bank may notify
any Person owing funds to Borrower of Bank's security interest in such funds
and verify the amount of such Account. Borrower shall collect all amounts
owing to Borrower for Bank, receive in trust all payments as Bank's trustee,
and immediately deliver such payments to Bank in their original form as
received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts
or furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement after notice from Bank, then Bank
may do any or all of the following: (a) make payment of the same or any part
thereof; (b) set up such reserves under the Committed Revolving Line as Bank
deems necessary to protect Bank from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in Section 6.6
of this Agreement, and take any action with respect to such policies as Bank
deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by
Bank to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank
complies with reasonable banking practices, Bank shall not in any way or manner
be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. All risk of loss, damage or destruction of the Collateral shall be
borne by Borrower.
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9.6 Remedies Cumulative. Bank's rights and remedies
under this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of
any Event of Default on Borrower's part shall be deemed a continuing waiver.
No delay by Bank shall constitute a waiver, election, or acquiescence by it.
No waiver by Bank shall be effective unless made in a written document signed
on behalf of Bank and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Bank on which Borrower may in any way
be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower: Visual Networks, Inc.
0000 Xxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx Xxxxxxxx, Chief Financial Officer
FAX:
----------------------------------
If to Bank: Silicon Valley East
One Central Plaza
00000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attn: X. Xxxxx Tower, Senior Vice President
FAX: (000) 000-0000
With a Copy to; Silicon Valley Bank
0000 Xxxxxx Xxxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Loan Services
Fax: (000) 000-0000
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The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Maryland, without regard to
principles of conflicts of law. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF MARYLAND IN
ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR
BY REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK
CANNOT AVAIL ITSELF OF THE COURTS OF MARYLAND, BORROWER ACCEPTS JURISDICTION OF
THE COURTS AND VENUE IN SANTA XXXXX COUNTY, CALIFORNIA. BORROWER AND BANK EACH
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind
and inure to the benefit of the respective successors and permitted assigns of
each of the parties; provided, however, that neither this Agreement nor any
rights hereunder may be assigned by Borrower without Bank's prior written
consent, which consent may be granted or withheld in Bank's sole discretion.
Bank shall have the right without the consent of or notice to Borrower to sell,
transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank's obligations, rights and benefits hereunder, provided that
in the case of a sale or transfer of all or a portion of the Obligations
evidenced by this Agreement and the other Loan Documents, Bank will furnish
Borrower with prior written notice of the name and address of the intended
transferee.
12.2 Indemnification. Borrower shall defend, indemnify
and hold harmless Bank and its officers, employees, and agents against: (a)
all obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses in any way suffered, incurred,
or paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under the Loan
Documents, or otherwise (including without limitation reasonable
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attorneys fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement
cannot be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding. The obligations of Borrower to
indemnify Bank with respect to the expenses, damages, losses, costs and
liabilities described in Section 12.2 shall survive until all applicable
statute of limitations periods with respect to actions that may be brought
against Bank have run, provided that so long as the obligations set forth in
the first sentence of this Section 12.7 have been satisfied, and Bank has no
commitment to make any Advances or to make any other loans to Borrower, Bank
shall release all security interests granted hereunder and redeliver all
Collateral held by it in accordance with applicable law.
12.8 Confidentiality. In handling any confidential
information Bank shall exercise the same degree of care that it exercises with
respect to its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, and (iv) as may be
required in connection with the examination, audit or similar investigation of
Bank. Confidential information hereunder shall not include information that
either: (a) is in the public domain or in the knowledge or possession of Bank
when disclosed to Bank, or becomes part of the public domain after disclosure
to Bank through no fault of Bank; or
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(b) is disclosed to Bank by a third party, provided Bank does not have actual
knowledge that such third party is prohibited from disclosing such information.
12.9 Countersignature. This Agreement shall become
effective only when it shall have been executed by Borrower and Bank (provided,
however, in on event shall this Agreement become effective until signed by and
officer of Bank in California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
VISUAL NETWORKS, INC.
By: /s/ XXXXX X. XXXXXXXX
--------------------------------
Name: XXXXX X. XXXXXXXX
Title: EXEC VP/CFO
SILICON VALLEY BANK
By:
---------------------------------
X. Xxxxx Tower
Senior Vice President
SILICON VALLEY BANK
By:
----------------------------------
Name:
Title:
(Signed in Santa Xxxxx County, California)
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