1
EXHIBIT 10.13
REVOLVING CREDIT AND SECURITY AGREEMENT
DATED AS OF JULY 8, 1999
BY AND BETWEEN
AVANEX CORPORATION
AND
COMERICA BANK-CALIFORNIA
2
REVOLVING CREDIT AND SECURITY AGREEMENT
THIS REVOLVING CREDIT AND SECURITY AGREEMENT ("Agreement") is made and
delivered this 8th day of July, 1999, by and between Avanex Corporation, a
California corporation ("Borrower"), and COMERICA BANK-CALIFORNIA, a California
banking corporation ("Bank").
WITNESSETH
WHEREAS, Borrower desires to obtain certain credit facilities from the
Bank, as herein provided; and,
WHEREAS, Bank is willing to provide such credit facilities to and in
favor of Borrower, subject to the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, Borrower and Bank agree as follows:
SECTION 1: DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following respective meanings:
"ACCOUNTS," "CHATTEL PAPER," "DOCUMENTS," "EQUIPMENT," "FIXTURES,"
"GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS" and "INVENTORY" shall have the
respective meanings assigned to them in the UCC on the date of this Agreement.
"ACCOUNT DEBTOR" shall mean the party who is obligated on or under any
Account.
"ADVANCE(S)" shall mean a borrowing requested by Borrower and made by
Bank under the Revolving Credit pursuant to Section 2.1 of this Agreement.
"AFFILIATE" shall mean, when used with respect to any Person, any other
Person which, directly or indirectly, controls or is controlled by or is under
common control with such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"AFFILIATE RECEIVABLES" shall mean, as of any time of determination, any
amounts in respect of loans or advances owing to Borrower from any of its
Subsidiaries or Affiliates at such time.
"AGREEMENT" shall mean this Revolving Credit and Security Agreement, as
it may be amended from time to time.
"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,
provided that such costs and expenses incurred in connection with the
preparation and negotiation of the Loan Documents shall not exceed $4,000.00;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of appeal
or review, or those incurred in any Insolvency Proceeding), whether or not suit
is brought.
"BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as
amended, or any successor act or code.
1
3
"BASE RATE" shall mean that annual rate of interest designated by Bank
as its base rate, which rate may not be the lowest rate of interest charged by
Bank to any of its customers, and which rate is changed by Bank from time to
time, plus three quarters of a percent (0.75%).
"BORROWING BASE" shall mean the sum of: (a) seventy-five percent (75%)
of Borrower's Eligible Accounts after deducting therefrom all payments,
adjustments and credits applicable thereto, increasing to eighty percent (80%)
of Borrower's Eligible Accounts after deducting therefrom all payments,
adjustments and credits applicable thereto upon Borrower raising a minimum of
$5,000,000.00 in new equity; and, (b) $300,000.00 thru July 31, 2000; and, (c)
$750,000.00 which will decrease by $62,500.00 per month beginning August 31,
1999.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or
holiday, on which the Bank is open to carry on all or substantially all of its
normal commercial lending business in California.
"COLLATERAL" shall mean the property described on Exhibit A attached
hereto.
"COLLATERAL DOCUMENTS" shall mean all security agreements, assignments,
stock pledge agreements, mortgages, deeds of trust, guarantees and other
collateral documents executed by Borrower, or any other Person(s), and delivered
to Bank prior to or as of the date hereof, or from time to time subsequent
hereto, in connection with this Agreement, or any of the Loan Documents, or the
Indebtedness, to secure the payment and performance of the Indebtedness, as such
collateral documents may be amended from time to time, including, without
limitation, those Collateral Documents identified in this Agreement.
"CONTINGENT OBLIGATIONS" shall mean, 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.
"CURRENT ASSETS" shall mean, in respect of a Person and as of any
applicable date of determination, all (a) unrestricted cash, marketable
securities, or certificates of deposit, (b) non-affiliated accounts receivable,
(c) United States government securities, (d) claims against the United States
government, and (e) inventories (held for sale in the ordinary course of
business) of such Person.
"CURRENT LIABILITIES" shall mean, in respect of a Person and as of any
applicable date of determination, (a) all liabilities of such Person that should
be classified as current in accordance with GAAP, including, without limitation,
any portion of the principal of the Notes classified as current at such time,
plus (b) to the extent not otherwise included, all liabilities of the Borrower
to any of its Affiliates whether or not classified as current in accordance with
GAAP.
"CURRENT RATIO" shall mean, in respect of a Person and as of any
applicable date of determination thereof, the ratio of Current Assets to Current
Liabilities.
"DEBT" shall mean, as of any applicable date of determination thereof,
all items of indebtedness, obligation or liability of a Person, whether matured
or unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as liabilities in
accordance with GAAP. In the case of Borrower, the term "Debt" shall include,
without limitation, the Indebtedness.
"DEBT-TO-WORTH RATIO" shall mean, in respect of a Person and as of any
applicable date of determination thereof, the ratio of (a) the total Debt of
such Person at such time, to (b) the Tangible Net Worth of such Person at such
time.
2
4
"DEFAULT" shall mean any condition or event which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default.
"ELIGIBLE ACCOUNT" shall mean an Account (but shall not include interest
and service charges thereon) arising in the ordinary course of Borrower's which
meets each of the following requirements:
(a) It is not owing more than thirty (30) days after the date of
the original invoice or other writing evidencing such Account;
(b) It is not owing by an Account Debtor who has failed to pay
twenty-five percent (25%) or more of the aggregate amount of its
Accounts owing to Borrower within ninety (90) days after the date of the
respective invoices or other writings evidencing such Accounts;
(c) It arises from the sale or lease of goods and such goods
have been shipped or delivered to the Account Debtor under such Account;
or it arises from services rendered and such services have been
performed;
(d) It is evidenced by an invoice, dated not later than the date
of shipment or performance, rendered to such Account Debtor or some
other evidence of billing acceptable to Bank;
(e) It is not evidenced by any note, trade acceptance, draft or
other negotiable instrument or by any chattel paper, unless such note or
other document or instrument previously has been endorsed and delivered
by Borrower (or the relevant Subsidiary) to Bank;
(f) It is a valid, legally enforceable obligation of the Account
Debtor thereunder, and is not subject to any offset, counterclaim or
other defense on the part of such Account Debtor or to any claim on the
part of such Account Debtor denying liability thereunder in whole or in
part;
(g) It is not subject to any sale of accounts, any rights of
offset, assignment, lien or security interest whatsoever other than to
Bank;
(h) It is not owing by a Subsidiary or Affiliate of Borrower,
nor by an Account Debtor which (i) does not maintain its chief executive
office in the United States of America, (ii) is not organized under the
laws of the United States of America, or any state thereof, or (iii) is
the government of any foreign country or sovereign state, or of any
state, province, municipality or other instrumentality thereof;
(i) It is not an account owing by the United States of America
or any state or political subdivision thereof, or by any department,
agency, public body corporate or other instrumentality of any of the
foregoing, unless all necessary steps are taken to comply with the
Federal Assignment of Claims Act of 1940, as amended, or with any
comparable state law, if applicable, and all other necessary steps are
taken to perfect Bank's security interest in such Account;
(j) It is not owing by an Account Debtor for which Borrower or
any of its Subsidiaries has received a notice of (i) the death of the
Account Debtor or any partner of the Account Debtor, (ii) the
dissolution, liquidation, termination of existence, insolvency or
business failure of the Account Debtor, (iii) the appointment of a
receiver for any part of the property of the Account Debtor, or (iv) an
assignment for the benefit of creditors, the filing of a petition in
bankruptcy, or the commencement of any proceeding under any bankruptcy
or insolvency laws by or against the Account Debtor;
(k) It is not an account billed in advance, payable on delivery,
for consigned goods, for guaranteed sales, for unbilled sales, for
progress xxxxxxxx, payable at a future date in accordance with its
terms, subject to a retainage or holdback by the Account Debtor or
insured by a surety company;
3
5
(l) It is not owing by any Account Debtor whose obligations
Bank, acting in its sole discretion, shall have notified Borrower are
not deemed to constitute Eligible Accounts:
(m) That portion of Accounts owed by any single account debtor,
including Subsidiaries and Affiliates, that do not exceed twenty percent
(20%) of all Eligible Accounts; except (l) as approved by Bank in
writing including an 80% advance rate to Fujitsu, MCI, Nortel and Lucent
until December 31, 1999 at which time the advance rate will reduce to no
more than 40% of eligible accounts receivable; and,
(n) Accounts the collection of which Bank reasonably determines,
after consultation with Borrower, to be doubtful.
An Account which is at any time an Eligible Account, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be an Eligible Account.
"EQUIPMENT" shall mean all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ENVIRONMENTAL LAW(S)" shall mean all laws, codes, ordinances, rules,
regulations, orders, decrees and directives issued by any federal, state, local,
foreign or other governmental or quasi-governmental authority or body (or any
agency, instrumentality or political subdivision thereof) pertaining to the
environment or to any hazardous materials or wastes, toxic substances,
flammable, explosive or radioactive materials, asbestos, and/or other similar
materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, or any successor act or code.
"EVENT OF DEFAULT" shall mean any of those conditions or events listed
in Section 9 of this Agreement.
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"INDEBTEDNESS" shall mean all obligations of Borrower to Bank under this
Agreement, together with all other indebtedness and obligations of Borrower to
Bank under any other agreement, now existing or hereafter arising.
"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.
"LETTER OF CREDIT" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.5.
"LETTER OF CREDIT RESERVE" has the meaning set forth in Section 2.5.
"LOAN DOCUMENTS" shall mean collectively, this Agreement and any other
agreement or instrument executed pursuant to or in connection with the
Indebtedness, this Agreement or the other Loan Documents, as such documents may
be amended from time to time.
"LOANS" shall mean, collectively, the "Revolving Credit and Security
Agreement" and any loans which Bank in its sole discretion has made or may
hereafter make to Borrower, and "Loan" shall mean any of them.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon the
financial or other condition of Borrower or any of its Subsidiaries, or upon
Borrower's or any of its Subsidiaries' ability to perform their respective
obligations under any of the Loan Documents, or upon the enforceability of this
Agreement or any of the other Loan Documents.
4
6
"NET INCOME" shall mean the net income (or loss) of a Person for any
applicable period of determination, determined in accordance with GAAP, but
excluding, in any event:
(a) Any gains or losses on the sale or other disposition, not in
the ordinary course of business, of investments or fixed or capital
assets, and any taxes on the excluded gains and any tax deductions or
credits on account on any excluded losses; and,
(b) In the case of Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall have
actually been received by Borrower in the form of cash distributions.
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness to trade creditors and with respect to surety
bonds and similar obligations incurred in the ordinary course of
business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower
(provided that the primary obligations are not prohibited hereby), and
indebtedness of any Subsidiary to any other Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of any other
Subsidiary (provided that the primary obligations are not prohibited
hereby);
(f) Subject to the $3,000,000 cap in clause (g), indebtedness
secured by Permitted Liens;
(g) Capital leases or indebtedness in an aggregate amount
incurred in each fiscal year not to exceed $3,000,000 incurred solely to
purchase equipment which is secured in accordance with clause (c) of
"Permitted Liens" below and is not in excess of the lesser of the
purchase price of such equipment or the fair market value of such
equipment on the date of acquisition;
(h) Other Indebtedness not otherwise permitted by Section 8.4
not exceeding $100,000 in the aggregate outstanding at any time; and
(i) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (h)
above, provided that the principal amount thereof is not increased or
the terms thereof are not modified to impose more burdensome terms upon
Borrower or its Subsidiary, as the case may be.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing no more than 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., (iii) certificates of deposit maturing no more
than one (1) year from the date of investment therein issued by Bank;
and (iv) any Investments permitted by Borrower's investment
5
7
policy, as amended from time to time, provided that such investment
policy and any such amendment thereto has been approved by Bank.
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transaction in the
ordinary course of business;
(d) Investments accepted in connection with Transfers permitted
by Section 8.2;
(e) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the
Board of Directors of Borrower determines that such compensation is in
the best interests of Borrower, (ii) travel advances, employee
relocation loans and other employee loans and advances in the ordinary
course of business, and (iii) loans to employees, officers or directors
relating to the purchase of equity securities of Borrower or its
Subsidiaries pursuant to employee stock purchase plans or agreements
approved by Borrower's Board of Directors;
(f) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of
business;
(g) Investments pursuant to or arising under currency agreements
or interest rate agreements entered into in the ordinary course of
business;
(h) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions to, customers and suppliers who
are not Affiliates, in the ordinary course of business; provided that
this paragraph (h) shall not apply to Investments by Borrower in any
Subsidiary;
(i) Investments constituting acquisitions permitted under
Section 8.6;
(j) Deposit accounts of Borrower in which Bank has a Lien prior
to any other Lien;
(k) Deposit accounts of any subsidiaries maintained in the
ordinary course of business;
(l) Investments or Subsidiaries in or to other Subsidiaries or
Borrower and Investments by Borrower in Subsidiaries not to exceed
$100,000 in the aggregate;
(m) Other Investments not otherwise permitted by Section .8 not
exceeding $100,000 in the aggregate outstanding at any time; and
(n) Investments not to exceed $100,000 in the aggregate
consisting of joint ventures and strategic partnership consisting of the
development or licensing of technology or the providing of technical
support.
"PERMITTED LIENS" shall mean:
(a) Liens, security interests, mortgages and encumbrances in
favor of the Bank;
(b) Liens for taxes, assessments or other governmental charges
incurred in the ordinary course of business and for which no interest,
late charge or penalty is attaching or which is being contested in good
faith by appropriate proceedings and, if requested by Bank, bonded in an
amount and manner satisfactory to Bank;
(c) Liens, not delinquent, created by statute in connection with
worker's compensation, unemployment insurance, social security and
similar statutory obligations;
6
8
(d) Liens of mechanics, materialmen, carriers, warehousemen or
other like statutory or common law liens securing obligations incurred
in good faith in the ordinary course of business that are not yet due
and payable;
(e) Encumbrances consisting of existing or future zoning
restrictions, existing recorded rights-of-way, existing recorded
easements, existing recorded private restrictions or existing or future
public restrictions on the use of real property, none of which
materially impairs the use of such property in the operation of the
business for which it is used and none of which is violated in any
material respect by any existing or proposed structure or land use;
(f) Liens existing as of the date hereof as more particularly
described in Schedule I attached to this Agreement;
(g) Deposits under worker's compensation, unemployment
insurance, social security and other similar laws, or to secure the
performance of bids, tenders or contracts (other than for the repayment
of borrowed money) or to secure indemnity, performance or other similar
bonds for the performance of bids, tenders or contracts (other than for
the repayment of borrowed money) or to secure statutory obligations
(other than liens arising under ERISA or environmental liens) or surety
or appeal bonds, or to secure indemnity, performance or other similar
bonds in the ordinary course of business;
(h) Liens (i) upon or in any Equipment, other than Equipment
financed hereunder, 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 thereof, and the proceeds of
such Equipment;
(i) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of
business (including proceeds thereof and accessions thereto) incurred
solely for the purpose of financing the lease of such Equipment
(including Liens pursuant to leases permitted pursuant to Section 8.2
and Liens arising from UCC financing statements regarding leases
permitted by this Agreement);
(j) Leases or subleases and licenses and sublicenses granted to
others in the ordinary course of Borrower's business not interfering in
any material respect with the business of Borrower and its Subsidiaries
taken as a whole, and any interest or title of a lessor, licensor or
under any lease or license;
(k) Liens or assets (including the proceeds thereof and
accessions thereto that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation
that existed at the time it became or becomes a Subsidiary); provided
such Liens are not granted in contemplation or in connection with the
acquisition of such asset by Borrower or a Subsidiary;
(l) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.1(g);
(m) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with
the importation of goods;
(n) Liens that are not prior to the Lien of Bank which
constitute rights of set-off of a customary nature or banker's Liens
with respect to amounts on deposit, where arising by operation of law or
by contract, in connection with arrangement entered in to with banks in
the ordinary course of business;
(o) Earn-out and royalty obligations existing on the date hereof
or entered into in connection with an acquisition permitted by Section
8.2 or Section 8.6;
7
9
(p) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums; and
(q) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described
in clauses (f), (h), (i), (j), (k) and (o) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase.
"PERSON" OR "PERSON" shall mean any individual, corporation,
partnership, joint venture, limited liability company, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency, or other entity.
"QUICK ASSETS" shall mean, in respect of a Person and as of any
applicable date of determination, the total cash, marketable securities and
accounts receivable of such Person.
"QUICK RATIO" shall mean, in respect of a Person and as of any
applicable date of determination thereof, the ratio of Quick Assets to Current
Liabilities.
"REVOLVING CREDIT" shall mean a Loan made, or to be made, under the
revolving credit loan facility to be advanced to Borrower by the Bank pursuant
to Section 2 of this Agreement.
"REVOLVING CREDIT MATURITY DATE" shall mean October 1, 2000.
"SUBORDINATED DEBT" shall mean indebtedness of Borrower to third parties
which has been subordinated to the indebtedness pursuant to a subordination
agreement in form and substance satisfactory to Bank.
"SUBSIDIARY" shall mean any corporation (whether now existing or
hereafter organized or acquired) in which more than fifty percent (50%) of the
outstanding securities having ordinary voting power for the election of
directors, as of any applicable date of determination, shall be owned directly,
or indirectly through one or more Subsidiaries, by Borrower.
"TANGIBLE EFFECTIVE NET WORTH" shall mean, with respect to any Person
and as of any applicable date of determination, Tangible Net Worth plus
Subordinated Debt.
"TANGIBLE NET WORTH" shall mean, with respect to any Person and as of
any applicable date of determination, the excess of (a) the net book value of
all assets of such Person (excluding Affiliate Receivables, patent rights,
trademarks, trade names, franchises, copyrights, licenses, goodwill, and all
other intangible assets of such Person), after all appropriate deductions in
accordance with GAAP (including, without limitation, reserves for doubtful
receivables, obsolescence, depreciation and amortization), over (b) all Debt of
such Person at such time.
"UCC" shall mean the California Uniform Commercial Code.
1.2 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be determined and construed in accordance with GAAP.
1.3 Singular and Plural. Where the context herein requires, the singular
number shall be deemed to include the plural, the masculine gender shall include
the feminine and neuter genders, and vice versa.
SECTION 2: REVOLVING CREDIT
2.1 Revolving Credit Commitment. Subject to the terms and conditions of
this Agreement, the Bank agrees to make Advances of the Revolving Credit to
Borrower at any time and from time to time from the effective date hereof until
(but not including) the Revolving Credit Maturity Date. The aggregate principal
amount of Advances shall not exceed (a) $3,750,000.00 or the Borrowing Base,
whichever is less. Subject to the terms and conditions of this Agreement,
amounts hereunder may be repaid and reborrowed at any time prior to the
Revolving
8
10
Credit Maturity Date. Borrower may prepay all or part of the outstanding
Advances without premium or penalty. If at anytime the outstanding Advances
exceed the lesser of $3,750,000.00 or the Borrowing Base, Borrower shall
immediately pay Bank, in cash, the amount of such excess.
2.2 Accrual and Payment of Interest and Maturity. The Revolving Credit,
and all principal and interest outstanding thereunder, shall mature and become
due and payable in full on the Revolving Credit Maturity Date. Each Advance
shall, from and after the date of such Advance, bear interest at a per annum
rate equal to the Base Rate. Interest on the unpaid balance of all Advances
outstanding under the Revolving Credit from time to time shall be payable on
August 1, 1999, and continuing on a like day of each successive calendar month
thereafter, until the Revolving Credit Maturity Date, when all unpaid principal,
interest and other amounts owing under the Revolving Credit shall be due and
payable.
2.3 Requests for Advances. Borrower may request an Advance under the
Revolving Credit only after delivery to Bank of a Request for Advance executed
by an authorized officer of Borrower, subject to the following:
(a) Each such Request for Advance shall set forth the
information required on the Request for Advance form annexed hereto as
Exhibit "B" (or such other form as acceptable to Bank), including,
without limitation, the proposed amount and date of such Advance, which
date must be a Business Day;
(b) Each such Request for Advance shall be delivered to Bank by
3:00 p.m. California time on the proposed date of Advance; and,
(c) A Request for Advance, once delivered to Bank, shall not be
revocable by Borrower.
(d) Bank may make Advances under the Revolving Credit upon the
telephonic or facsimile request of Borrower, which Borrower shall
confirm in writing by delivering to Bank, on or before 11:00 a.m. on the
next Business Day following such Advance with a duly executed Request
for Advance and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of reliance on such
telephonic or facsimile request.
2.4 Disbursement of Advances. Subject to the terms and conditions of
this Agreement, Bank shall make available to Borrower the amount of the Advance
so requested on the date of such Advance by credit to an account of Borrower
maintained with Bank or to such other account or third party as Borrower may
reasonably direct.
2.5 Facility Fee. On the date hereof, a facility fee in the amount of
Twenty-two thousand two-hundred fifty Dollars ($22,250.00), shall be due, earned
and nonrefundable upon execution of the Loan Documents.
2.6 Warrant. On the date hereof, an executed Warrant To Purchase Stock,
dated July 8, 1999, shall be furnished to the Bank concurrent with execution of
the Loan documents.
SECTION 3: PAYMENTS, RECOVERIES AND COLLECTIONS
3.1 Interest Computations. In the event the Base Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Base Rate is
changed, by an amount equal to such change in the Base Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
3.2 Bank's Books and Records. The amount and date of each Loan
hereunder, the amount from time to time outstanding, the applicable interest
rate in respect of each Loan, and the amount and date of any repayment
hereunder, shall be noted on Bank's books and records, which shall be conclusive
evidence thereof, absent manifest error; provided, however, any failure by Bank
to make any such notation, or any error in any such notation, shall not relieve
Borrower of its obligations to pay to Bank all amounts owing to Bank under or
pursuant to this Agreement and each of the other Loan Documents, in each case,
when due in accordance with the terms hereof or thereof.
9
11
3.3 Payments on Non-Business Day. In the event that any payment of any
principal, interest, fees or any other amounts payable by Borrower under or
pursuant to this Agreement, or under any other Loan Document shall become due on
any day which is not a Business Day, such due date shall be extended to the next
succeeding Business Day, and, to the extent applicable, interest shall continue
to accrue and be payable at the applicable rate(s) for and during any such
extension.
3.4 Payment Procedures. All sums payable by Borrower to Bank under or
pursuant to this Agreement, or any other Loan Document, whether principal,
interest, or otherwise, shall be paid, when due, directly to Bank at the office
of Bank identified on the signature page of this Agreement, or at such other
office of Bank as Bank may designate in writing to Borrower from time to time,
in immediately available United States funds, and without setoff, deduction or
counterclaim. Bank may, in its discretion, charge any and all deposit or other
accounts (including, without limitation, any account evidenced by a certificate
of deposit or time deposit) of Borrower maintained with Bank for all or any part
of any Indebtedness then due and payable; provided, however, that such
authorization shall not affect Borrower's obligations to pay all Indebtedness,
when due, whether or not any such account balances maintained by Borrower with
Bank are insufficient to pay any amounts then due.
3.5 Default Rate. Notwithstanding anything to the contrary set forth
herein, in the event that and so long as any Event of Default shall have
occurred and be continuing or exist, all Indebtedness outstanding shall bear
interest at a rate equal to the then applicable interest rate plus three percent
(3%), which interest, in any case, shall be payable upon demand.
3.6 Receipt of Payments by Bank. Any payment by Borrower of any of the
Indebtedness made by mail will be deemed tendered and received by Bank only upon
actual receipt thereof by Bank at the address designated for such payment,
whether or not Bank has authorized payment by mail or in any other manner, and
such payment shall not be deemed to have been made in a timely manner unless
actually received by Bank on or before the date due for such payment, time being
of the essence. Borrower expressly assumes all risks of loss or liability
resulting from non-delivery or delay of delivery of any item of payment
transmitted by mail or in any other manner. Acceptance by Bank of any payment in
an amount less than the amount then due shall be deemed an acceptance on account
only, and any failure to pay the entire amount then due shall constitute and
continue to be an Event of Default hereunder, and at any time thereafter, and
until the entire amount then due has been paid in full, Bank shall be entitled
to exercise any and all rights and remedies conferred upon and otherwise
available to Bank hereunder or any of the other Loan Documents upon the
occurrence and during the continuance of any such Event of Default. Prior to the
occurrence of any Event of Default hereunder, Borrower shall have the right to
direct the application of any and all payments made to Bank by Borrower
hereunder to the respective Indebtedness. Borrower waives the right to direct
the application of any and all payments received by Bank from and on behalf of
Borrower at any time or times after the occurrence and during the continuance of
any Event of Default hereunder. Borrower further agrees that after the
occurrence and during the continuance of any Event of Default hereunder, or
prior to the occurrence of any Event of Default hereunder if Borrower has failed
to direct such application, Bank shall have the continuing exclusive right to
apply and to reapply any and all payments received by Bank at any time or times
hereafter, whether as voluntary payments, proceeds from any Collateral, offsets,
or otherwise, against the Indebtedness in such order and in such manner as Bank
may, in its sole discretion, deem advisable, notwithstanding any entry by Bank
upon any of its books and records. Borrower hereby expressly agrees that, to the
extent that Bank receives any payment or benefit of or otherwise upon any of the
Indebtedness, and such payment or benefit, or any part thereof, is subsequently
invalidated, declared to be fraudulent or preferential, set aside, or required
to be repaid to a trustee, receiver, or any other party under any bankruptcy
act, state or federal law, common law, or equitable cause, then to the extent of
such payment or benefit, the Indebtedness, or part thereof, intended to be
satisfied shall be revived and continued in full force and effect as if such
payment or benefit had not been made by Borrower or received by Bank, and,
further, any such repayment by Bank shall be added to and be deemed to be
additional Indebtedness.
SECTION 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 Indebtedness
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except for Permitted Liens, such security
interest constitutes a valid, first priority security interest
10
12
in the presently existing Collateral, and will constitute a valid, first
priority security interest in Collateral acquired after the date hereof, in each
case, to the extent that a security interest in such Collateral can be perfected
by the filing of a financing statement or, in the case of Collateral consisting
of instruments, documents, chattel paper or certificated securities, to the
extent that Bank takes possession of such Collateral. Borrower acknowledges that
Bank may place a "hold" on any deposit account pledged as Collateral to secure
the Indebtedness. Bank agrees to execute and deliver to Borrower from time to
time such subordination agreements as Borrower may request and as are necessary
to give to other lenders which finance equipment for Borrower a first priority
security interest in the equipment financed so long as the Liens and the
Indebtedness incurred with respect to such equipment financing are permitted
under this Agreement. Notwithstanding the foregoing, the security interest
granted herein shall not extend to and the term "Collateral" shall not include
any property, rights or licenses to the extent the granting of a security
interest therein (i) would be contrary to applicable law or (ii) is prohibited
by or would constitute a default under any agreement or document governing such
property, rights or licenses (but only to the extent such prohibition is
enforceable under applicable law, including without limitation Section 9318 of
the Code); provided that immediately and automatically upon the ineffectiveness,
lapse or termination of any such prohibition or restriction, the Collateral
shall include such property, rights or licenses, and Borrower shall be deemed to
have granted a security interest in all such rights and interests as if such
prohibition or restriction had never been in effect. Notwithstanding termination
of this Agreement, Bank's Lien on the Collateral shall remain in effect for so
long as any Indebtedness is outstanding.
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 Rights to Inspect. Bank (through any of its officers, employers, 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. Notwithstanding any provision of this
Agreement to the contrary, except upon the occurrence and during the
continuation of an Event of Default, Borrower shall not be required to disclose,
permit the inspection, examination, copying or making extracts of, or discuss,
any document, information or other matter that (i) constitutes non-financial
trade secrets or non-financial proprietary information, or (ii) the disclosure
of which to Bank, or their designated representative, is then prohibited by (a)
law, or (b) an agreement binding on the Borrower that was not entered into by
the Borrower for the primary purpose of concealing information from the Bank.
SECTION 5: CONDITIONS PRECEDENT
5.1 The obligation of the Bank to make the initial Loan under or
pursuant to this Agreement, Bank shall have received the following, all in form
and substance satisfactory to Bank:
(a) The Loan Documents;
(b) Evidence of the authorization of the Loan Documents and
incumbency of Borrower's officers; and,
(c) Such additional documents or certificates as may be required
by Bank and/or required under the terms of any and every Collateral
Document.
5.2 Conditions Precedent to Disbursement of All Loans. The obligation of
Bank to make any Loan under this Agreement, including the initial Loan
hereunder, shall be further subject to the satisfaction of each of the following
conditions precedent on or before any disbursement under such Loan:
(a) Representations and Warranties. Each of the representations
and warranties of Borrower, and any other Person who is a party to any
of the Loan Documents, under this Agreement and any of the other Loan
Documents shall be true and correct in all material respects.
11
13
(b) No Default or Material Adverse Change. No Default or Event
of Default shall have occurred and be continuing; there shall have been
no material adverse change in the condition (financial or otherwise),
properties, business, or operations of Borrower, any of its
Subsidiaries, or any guarantor since the date of the most recent
financial statements delivered to Bank in accordance with the terms of
this Agreement; and no provision of law, any order of any court or other
agency of government, or any regulation, rule or interpretation thereof,
shall reasonably be expected to have had any Material Adverse Effect on
the validity or enforceability of this Agreement, or any other Loan or
Collateral Documents.
SECTION 6: REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
6.1 Authority. Borrower is a corporation duly organized and existing in
good standing under the laws of the State of California and is duly qualified
and authorized to do business as a corporation in each jurisdiction where the
character of its assets or the nature of its activities makes such qualification
necessary, except for jurisdictions as to which any failure to be so qualified
could not reasonably be expected to have a Material Adverse Effect.
6.2 Due Authorization: Noncontravention. Execution, delivery and
performance by Borrower of this Agreement, each of the Loan Documents, and any
and all other documents and instruments required under this Agreement and/or to
which it is a party or is otherwise bound are within the corporate powers of
Borrower, have been duly authorized by all necessary corporate action, and are
not in contravention of law or the terms of Borrower's Articles of
Incorporation, Bylaws, or other constitutional documents or any agreement to
which Borrower is party or by which it is bound.
6.3 Title to Property. Borrower has good and valid title to all property
and assets purported to be owned by it, including those assets identified on the
financial statements most recently delivered by Borrower to and accepted by
Bank, free and clear of all security interests, liens, mortgages, or other
encumbrances.
6.4 Name: Location of Chief Executive Office. Borrower has not done
business and will not, without at least thirty (30) days prior written notice to
Bank, do business under any name other than that specified on the signature page
hereof. Borrower's chief executive office is located at 00000 Xxxxxx Xxxxxx,
Xxxxxxx, Xxxxxxxxxx 00000 and Borrower covenants and agrees that it will not,
during the term of this Agreement, without prior written notification to Bank,
relocate said chief executive office.
6.5 Solvency. the fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities: the
Borrower is not left with unreasonably small capital after the transaction
contemplated by this Agreement: Borrower is now and shall be at all times
solvent and able to pay its debts (including trade debts) as they mature.
6.6 No Material Adverse Change in Financial Statement. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the date of this Agreement.
6.7 Subsidiaries. There are no directly or indirectly owned Subsidiaries
of Borrower, except as set forth in Schedule 2 attached hereto, which Schedule
sets forth the percentage of ownership of Borrower in each such Subsidiary as of
the date of this Agreement.
6.8 Taxes. Borrower and each of its Subsidiaries have each filed, on or
before their respective due dates, all material federal, state, local and
foreign tax returns which are required to be filed, or have obtained extensions
for filing such tax returns, and is not delinquent in filing such returns in
accordance with such extensions, and have paid all taxes which have become due
pursuant to those returns or pursuant to any assessments received by
12
14
any such party, as the case may be, to the extent such taxes have become due,
except to the extent such tax payments are being actively and diligently
contested in good faith by appropriate proceedings.
6.9 No Defaults. There exists no default under the provisions of any
instrument or agreement evidencing, governing or otherwise relating to any Debt
of Borrower or any of its Subsidiaries, or connected with any of the Permitted
Liens, or with respect to any other agreement, a default under which could
reasonably be expected to have a Material Adverse Effect.
6.10 Actions, Suits, Litigation or Proceedings. There are no actions,
suits, litigation or proceedings, at law or in equity, and no proceedings before
any arbitrator or by or before any governmental commission, board, bureau, or
other administrative agency, pending, or, to the best knowledge of Borrower,
threatened against or affecting Borrower or any of its Subsidiaries, or any
properties or rights of Borrower or any of its Subsidiaries, which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.
Neither Borrower nor any of its Subsidiaries is under investigation by, or is
operating under any restrictions imposed by, any regulatory body or authority.
6.11 Compliance with Laws. Borrower and its Subsidiaries have each
complied with all applicable laws, including, without limitation, Environmental
Laws, to the extent that failure to so comply could have a Material Adverse
Effect. Neither Borrower nor any of its Subsidiaries maintains or contributes to
any employee benefit plan subject to Title IV of ERISA. Furthermore, neither
Borrower nor any of its Subsidiaries has incurred any accumulated funding
deficiency within the meaning of ERISA or incurred any liability to the Pension
Benefit Guaranty Corporation ("PBGC") in connection with any employee benefit
plan established or maintained by Borrower or any of its Subsidiaries, and no
reportable event or prohibited transaction, as defined in ERISA, has occurred
with respect to such plans. Neither Borrower nor any of its Subsidiaries is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, nor is Borrower or any of its Subsidiaries "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended. Neither Borrower nor any of its Subsidiaries is engaged principally,
or as one of its important activities, directly or indirectly, in the business
of extending credit for the purpose of purchasing or carrying margin stock, and
none of the proceeds of any of the Loans will be used, directly or indirectly,
to purchase or carry any margin stock or made available by Borrower or any of
its Subsidiaries in any manner to any other Person to enable or assist such
Person in purchasing or carrying margin stock.
6.12 Consents, Approvals and Filings, Etc. Except as have been
previously obtained or as otherwise expressly provided in this Agreement, no
authorization, consent, approval, license, qualification or formal exemption
from, nor any filing, declaration or registration with, any court, environmental
agency or regulatory authority or other governmental body or any securities
exchange, and no material authorization, consent or approval from any other
Person, is required in connection with the execution, delivery and performance
by Borrower of this Agreement, or any of the other Loan Documents. All such
authorizations, consents, approvals, licenses, qualifications, exemptions,
filings, declarations and registrations which have previously been obtained or
made, as the case may be, are in full force and effect and are not the subject
of any attack, or to the knowledge of Borrower, any threatened attack, in any
material respect, by appeal, direct proceeding or otherwise.
6.13 Environmental Representations. (a) Neither Borrower nor any of its
Subsidiaries has received any notice of any violation of any Environmental
Law(s); and neither Borrower nor any of its Subsidiaries is a party to any
litigation or administrative proceeding, nor, so far as is known by Borrower, is
any litigation or administrative proceeding threatened against Borrower or any
of its Subsidiaries which, in any case, (i) asserts or alleges that Borrower or
any of its Subsidiaries violated any Environmental Law(s), (ii) asserts or
alleges that Borrower or any of its Subsidiaries is required to clean up,
remove, or take any other remedial or response action due to the disposal,
depositing, discharge, leaking or other release of any hazardous materials, or
(iii) asserts or alleges that Borrower or any of its Subsidiaries is required to
pay all or a portion of any past, present or future clean-up, removal or other
remedial or response action which arises out of or is related to the disposal,
depositing, discharge, leaking or other release of any hazardous materials by
Borrower or any of its Subsidiaries, and which, either singularly or in the
aggregate, could have a Material Adverse Effect upon the business, operations,
conditions (financial or otherwise), performance or properties of Borrower or
any of its Subsidiaries.
13
15
6.13.1 To the best of Borrower's knowledge, there are no
conditions existing currently which could subject Borrower or any of its
Subsidiaries to damages, penalties, injunctive relief or clean-up costs
under any applicable Environmental Law(s), or which require, or are
likely to require, clean-up, removal, remedial action or other response
pursuant to any applicable Environmental Law(s) by Borrower or any of
its Subsidiaries, and which, in any case, either singularly or in
aggregate, could have a Material Adverse Effect upon the business,
operations, conditions (financial or otherwise), performance or
properties of Borrower or any of its Subsidiaries.
6.13.2 Neither Borrower nor any of its Subsidiaries is subject
to any judgment, decree, order or citation related to or arising out of
any applicable Environmental Law(s), which, either singularly or in the
aggregate, could have a Material Adverse Effect upon the business,
operations, conditions (financial or otherwise), performance or
properties of Borrower or any of its Subsidiaries; and, to the best of
Borrower's knowledge, neither Borrower nor any of its Subsidiaries has
been named or listed as a potentially responsible party by any
governmental body or agency in any matter arising under any applicable
Environmental Law(s).
6.13.3 Borrower and each of its Subsidiaries have all material
permits, licenses and approvals required under applicable Environmental
Laws, where the failure to so obtain or maintain any such permits,
licenses or approvals could have a Material Adverse Effect upon the
business, operations, conditions (financial or otherwise), performance
or properties of Borrower or any of its Subsidiaries.
6.14 Warranties, Representations and Agreements. Each warranty,
representation and agreement contained in this Agreement shall be automatically
deemed repeated with each Advance and shall be conclusively presumed to have
been relied on by Bank regardless of any investigation made or information
possessed by Bank. The warranties, representations and agreements set forth
herein shall be cumulative and in addition to any and all other warranties,
representations and agreements which Borrower shall give, or cause to be given,
to Bank, either now or hereafter.
6.15 Merchantable Inventory. All Inventory is in all material respects
of good and marketable quality, free from all material defects.
6.16 Accuracy of Information. The Financial Statements of Borrower and
its Subsidiaries, previously furnished to Bank, have been prepared in accordance
with GAAP, are complete and correct in all material respects, and fairly present
the financial condition of Borrower and the consolidated financial condition of
Borrower and its Subsidiaries, and the results of their respective operations as
of the dates and for the periods covered thereby; and since the date(s) of said
financial statements, there has been no material adverse change in the financial
condition of Borrower or any of its Subsidiaries. Neither Borrower nor any of
its Subsidiaries has any material contingent obligations, liabilities for taxes,
long-term leases, or long-term commitments not disclosed by, or reserved against
in, such financial statements. Borrower and each of its Subsidiaries is solvent,
able to pay its respective debts as they mature, has capital sufficient to carry
on its business and has assets the fair market value of which exceed its
liabilities, and Borrower will not be rendered insolvent, under-capitalized or
unable to pay debts generally as they become due by the execution or performance
of this Agreement, or any of the other Loan Documents to which it is a party or
by which it is otherwise bound.
SECTION 7: AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as Bank is committed to make
any Loan(s) under this Agreement, and thereafter, so long as any Indebtedness
remains outstanding under this Agreement, it will, and, as applicable, it will
cause its Subsidiaries to:
7.1 Preservation of Existence, Etc. Preserve and maintain its existence
and such of its rights, licenses, and privileges as are material to the business
and operations conducted by it; qualify and remain qualified to do business in
each jurisdiction in which such qualification is material to its business and
operations or ownership of its properties, continue to conduct and operate its
business substantially as conducted and operated during the present and
preceding calendar year; at all times maintain, preserve and protect all of its
franchises and trade names and preserve all the remainder of its property and
keep the same in good repair, working order and condition.
14
16
7.2 Keeping of Books. Keep proper books of record and account in which
full and correct entries shall be made of all of its financial transactions and
its assets and businesses so as to permit the presentation of financial
statements prepared in accordance with GAAP; and permit Bank, or its
representatives, at reasonable times and intervals, at Borrower's cost and
expense, to visit all of Borrower's and each of its Subsidiary's offices,
discuss their respective financial matters with their officers, employees,
directors and independent certified public accountants.
7.3 Reporting Requirements. Furnish to Bank, or cause to be furnished to
Bank, the following:
(a) As soon as possible, and in any event within three (3)
calendar days after becoming aware of the occurrence or existence of
each Default or Event of Default hereunder or any material adverse
change in the financial condition of Borrower, any of its Subsidiaries
or any Guarantor, a written statement of the chief financial officers of
Borrower (or in his or her absence, a responsible senior officer of
Borrower), setting forth details of such Default, Event of Default or
change, and the action which Borrower has taken, or has caused to be
taken, or proposes to take, or to cause to be taken, with respect
thereto;
(b) As soon as available, and in any event within ninety (90)
days after and as of the end of each fiscal year of Borrower, a balance
sheet and statement of profit and loss and surplus reconciliation and a
statement of cash flows of Borrower, for and as of such fiscal year then
ending, in each case, prepared on a reviewed basis by independent
certified public accountants satisfactory to Bank, and certified by the
chief financial officer of Borrower as to consistency with prior
financial reports and accounting periods, accuracy, and fairness of
presentation;
(c) As soon as available, and in any event within thirty (30)
days after and as of the end of each calendar month, including the last
calendar month of each of Borrower's fiscal years, a balance sheet and
statement of profit and loss and surplus reconciliation and a statement
of cash flows of Borrower for and as of the month then ending and for
and as of that portion of the fiscal year of Borrower then ending, in
each case, certified by the chief financial officer of Borrower as to
consistency with prior financial reports and accounting periods,
accuracy, and fairness of presentation;
(d) As soon as available, and in any event within twenty (20)
days after and as of the end of each calendar month, agings and reports
of Borrower's accounts receivable and accounts payable, in each case, in
form and detail satisfactory to Bank.
(e) Simultaneously with the financial statements to be delivered
to Bank pursuant to Sections 7.3(b) and (c) above, a Compliance
Certificate in substantially the form of attached Exhibit C, dated as of
the end of such month or year, as the case may be; and,
(f) Promptly, and in form and detail to be satisfactory to the
Bank, such other information as Bank may reasonably request from time to
time.
7.4 Financial Covenants. Borrower shall maintain the following financial
ratios and covenants on a consolidated and non-consolidated basis:
* Tangible Net Worth. Maintain a Tangible Net Worth, as of the last day of each
calendar month, of not less than $2,500,000.00 which shall increase by 75% of
new equity and by 75% of any net profit on a quarterly basis.
* Quick Ratio. Maintain a Quick Ratio, as of the last day of each calendar
month, of not less than the following during each of the respective periods:
Period Amount
--------------------------------------------------------- --------
From the date of this Agreement through November 30, 1999 1.00:1
At all times from and after December 31, 1999 1.50:1
15
17
* Profitability Borrower shall have a maximum net loss of Five-Hundred Thousand
Dollars ($500,000.00) for the quarter ending December 31, 1999. Thereafter
Borrower to be profitable on a quarterly basis allowing one loss quarter per
fiscal year not to exceed Three-Hundred Thousand Dollars ($300,000.00).
* New Equity. Borrower shall raise new equity in a minimum amount of
$5,000,000.00 by November 30, 1999.
7.5 Inspections. Permit Bank, through its authorized attorneys,
accountants and representatives, at Borrower's cost and expense, to examine
Borrower's and each of its Subsidiary's, books, accounts, records, ledgers and
assets and properties of every kind and description, wherever located, at all
reasonable times during normal business hours, upon reasonable oral or written
request of Bank.
7.6 Indemnification. Indemnify and save Bank harmless from any and all
losses, costs, damages, liabilities and expenses, including, without limitation,
reasonable attorneys' fees, incurred by Bank in connection with any of the Loan
Documents or any transactions contemplated thereby or the Collateral and any
failure by Borrower or any Subsidiary to comply with any laws, including any
Environmental Laws.
7.7 Governmental and Other Approvals. Apply for, obtain and/or maintain
in effect, as applicable, all authorizations, consents, approvals, licenses,
qualifications, exemptions, filings, declarations and registrations (whether
with any court, governmental agency, regulatory authority, securities exchange
or otherwise) which are necessary in connection with the execution, delivery
and/or performance by Borrower and its Subsidiaries of this Agreement, the Loan
Documents, or any other documents or instruments to be executed and/or delivered
by Borrowers, or any of its Subsidiaries, in connection therewith or herewith
and the transactions consummated or to be consummated hereunder or thereunder.
7.8 Insurance. Maintain insurance coverage on its physical assets and
against other business risks in such amounts and of such types as are
customarily carried by companies similar in size and nature (including, without
limitation, loss of rent and/or business interruption insurance and boiler and
machinery insurance), and in the event of acquisition of additional property,
real or personal, or of the incurrence of additional risks of any nature,
increase such insurance coverage in such manner and to such extent as prudent
business judgment and present practice would dictate; and in the case of all
policies covering property subject to Collateral Documents or property in which
the Bank shall have a security interest of any kind whatsoever, other than those
policies protecting against casualty liabilities to strangers, all such
insurance policies shall provide that the loss payable thereunder shall be
payable to Borrower (or other Person providing Collateral pursuant hereto) and
Bank, with mortgagee's clauses in favor of and satisfactory to Bank for all such
policies, and such policies shall also provide that they may not be canceled or
changed without thirty (30) days' prior written notice to Bank. Upon the request
of Bank, all of said policies, or copies thereof, including all endorsements
thereon and those required hereunder, shall be deposited with Bank.
7.9 Environmental Covenants. (a) Comply in all material respects with
all applicable Environmental Laws, and maintain all material permits, licenses
and approvals required under applicable Environmental Laws, where the failure to
do so could have a Material Adverse Effect upon the business, operations,
condition (financial or otherwise) performance or properties of Borrower, of any
of its Subsidiaries, or could have a Material Adverse Effect upon Borrower's, or
any of its Subsidiaries', ability to perform their respective obligations under
this Agreement or any of the other Loan Documents, or could materially adversely
affect the enforceability of this Agreement or any of the other Loan Documents.
7.9.1 Promptly notify Bank, in writing, as soon as Borrower
becomes aware of any condition or circumstance which makes any of the
environmental representations or warranties set forth in this Agreement
incomplete, incorrect or inaccurate in any material respect as of any
date; and promptly provide to Bank, immediately upon receipt thereof,
copies of any material correspondence, notice, pleading, citation,
indictment, complaint, order, decree, or other document from any source
asserting or alleging a violation of any Environmental Laws by either
Borrower, or any of its Subsidiaries, or of any circumstance or
condition which requires or may require, a financial contribution by
Borrower, or any of its Subsidiaries,
16
18
or a clean-up, removal, remedial action or other response by or on
behalf of Borrower, or any of its Subsidiaries, under applicable
Environmental Law(s), or which seeks damages or civil, criminal, or
punitive penalties from Borrower, or any of its Subsidiaries, or any
violation or alleged violation of Environmental Law(s).
7.10 Year 2000 Compliant. Perform a comprehensive review and assessment
of all of Borrower's and any of its Subsidiaries' systems and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and testing
of such systems to ensure, to the extent reasonably commercially practicable,
that (i) Borrower and any of its Subsidiaries' become Year 2000 Compliant in a
timely manner. As used in this Section, "Year 2000 Compliant" shall mean, in
regard to any entity, that all software, hardware, firmware, equipment, goods or
systems utilized by or material to the business operations or financial
condition of such entity, will properly perform date sensitive functions before,
during and after the year 2000. Borrower shall, immediately upon request,
provide to Bank such certifications or other evidence of Borrower's and any of
its Subsidiaries' compliance with the terms of this Section as Bank may from
time to time require.
7.11 Principal Depository. Borrower shall maintain its principal bank
accounts with Bank as of the effective date of this Agreement or within a
reasonable time, not to exceed two (2) months, thereafter.
7.12 Inventory; Location. Borrower shall keep the Inventory only at the
following locations: 00000 Xxxxxx Xxxxxx - Xxxxxxx, XX 00000 and 000
Xxxxxxxxxxxxx Xxxxxxx - Xxxxxxxxxx, XX 00000 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.
7.13 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
one-hundred thousand Dollars ($100,000.00).
SECTION 8: NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as Bank is committed to make
any Loan under this Agreement, and thereafter, so long as any Indebtedness
remains outstanding under this Agreement or any Note, it will not, and it will
not allow its Subsidiaries to, without the prior written consent of Bank:
8.1 Capital Structure, Business Objects or Purpose. Purchase, acquire or
redeem any of its capital stock, or enter into any reorganization or
recapitalization or reclassify its capital stock, or make any material change in
its capital structure or general business objects or purpose.
8.2 Mergers or Dispositions. Enter into any merger or consolidation,
whether or not the surviving corporation thereunder, or sell, lease, transfer,
relocate or dispose of all, substantially all, or any material part of its
assets (whether in a single transaction or in a series of transactions), 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 or Equipment financed by other vendors; (iv) Transfers which
constituted liquidation of Investments permitted under Section 8.8; and (v)
other Transfers not otherwise permitted by this Section 7.1 not exceeding One
Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year.
8.3 Guaranties. Guarantee, endorse, or otherwise become secondarily
liable for or upon the obligations or Debt of others (whether directly or
indirectly), except:
(a) Guaranties in favor of and satisfactory to Bank; and
(b) Endorsements for deposit or collection in the ordinary
course of business.
17
19
8.4 Indebtedness. Become or remain obligated for any Debt, except:
(a) Indebtedness and other Debt from time to time outstanding
and owing to Bank.
(b) Current unsecured trade, utility or non-extraordinary
accounts payable arising in the ordinary course of business;
(c) Purchase money indebtedness incurred for the purpose of
purchasing or acquiring fixed assets, so long as the amount of such
purchase money indebtedness incurred by Borrower and its Subsidiaries
does not exceed three-million Dollars ($3,000,000.00), in aggregate, for
any fiscal year of Borrower;
(d) Debt and capital leases outstanding as of the date hereof
more particularly described in Schedule 1 attached hereto; and
(e) any other Permitted Indebtedness (without duplication of
clauses (a)-(d), above, and subject in any case to the $3,000,000 cap on
capital expenditures).
8.5 Encumbrances. Create, incur, assume or suffer to exist any mortgage,
pledge, encumbrance, security interest, lien or charge upon, or create, suffer
or permit to exist any lien, security interest in, or encumbrance upon any of
its property or assets, whether now owned or hereafter acquired, except for
Permitted Liens.
8.6 Acquisitions. Purchase or otherwise acquire or become obligated for
the purchase of all or substantially all of the assets or business interests of
any person, firm or corporation or any shares of stock of any corporation,
trusteeship or association or in any other manner effectuate or attempt to
effectuate an expansion of present business by acquisition; provided that this
Section 8.6 shall not apply to (i) the purchase of inventory, equipment, or
intellectual property rights in any transaction valued at less than $100,000 in
the ordinary course of business or (ii) transactions among Subsidiaries or among
Borrower and its Subsidiaries in which Borrower is the surviving entity.
8.7 Dividends. Declare or pay dividends on, or make any other
distribution (whether by reduction of capital or otherwise) in respect of any
shares of its capital stock, except (a) dividends payable by a Subsidiary to
Borrower; (b) dividends payable solely in stock; (c) conversion of any of its
convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange therefore, and (d) redemption,
repurchase or acquisition of any shares of its capital stock payable upon an
employee's termination pursuant to its employee stock option, repurchase, or
similar plan: provided, however, that after giving effect to such redemption,
repurchase or acquisition, Borrower shall be in full compliance with the terms
of this Agreement.
8.8 Investments. Make or allow to remain outstanding any investment
(whether such investment shall be of the character of investment in shares of
stock, evidences of indebtedness or other securities or otherwise) in, or any
loans or advances to, any Person, firm, corporation or other entity or
association, other than:
(a) Borrower's current ownership interests in those Subsidiaries
of Borrower identified on Schedule 2 attached hereto:
(b) Any investment in direct obligations of the United States of
America or any agency thereof, or in certificates of deposit issued by
Bank, maintained consistent with Borrower's or such Subsidiary's
business practices prior to the date hereof; provided, that no such
investment shall mature more than ninety (90) days after the date when
made or the issuance thereof; and
(c) Any other Permitted Investment
8.9 Transactions with Affiliates. Enter into any transaction with any of
their stockholders, officers, employees, partners or any of their Affiliates,
except, subject to the terms hereof, transactions in the ordinary course
18
20
of business and on terms not less favorable than would be usual and customary in
similar transactions between Persons dealing at arm's length.
8.10 Prepayment of Indebtedness. Prepay any Debt (or take any actions
which impose an obligation to prepay), except, subject to the terms hereof or
thereof, Indebtedness or other Debt payable to Bank.
8.11 Pension Plans. Except in compliance with this Agreement, enter
into, maintain, or make contribution to, directly or indirectly, any Pension
Plan that is subject to ERISA.
8.12 Subordinate Indebtedness. Subordinate any indebtedness due to it
from any Person to indebtedness of other creditors of such Person.
8.13 No Further Negative Pledges. Enter into or become subject to any
agreement (other than this Agreement or the Loan Documents) (a) prohibiting the
guaranteeing by Borrower or any of its Subsidiaries of any obligations, (b)
prohibiting the creation or assumption of any lien or encumbrance upon the
properties or assets of Borrower or any of its Subsidiaries, whether now owned
or hereafter acquired, or (c) requiring an obligation to become secured (or
further secured) if another obligation is secured or further secured.
8.14 Accounts Receivable. Sell or assign any Account, account
receivable, note or trade acceptance, except to the Bank.
8.15 Capital Expenditures. Make Capital Expenditures during Borrower's
fiscal year ending on or about June 30, 2000, in excess of three-million Dollars
($3,000,000.00) in aggregate, or in excess of three-million Dollars
($3,000,000.00) in aggregate, on a non-cumulative basis, in any fiscal year of
Borrower thereafter.
8.16 Inventory. That Inventory is not now and shall not at any time or
times hereafter be located or stored with a bailee, warehouseman, or other third
party without Bank's prior written consent, and, in such event, Borrower will
concurrently therewith cause any such bailee, warehouseman, or other third party
to issue and deliver to Bank, in a form acceptable to Bank, warehouse receipts
in Bank's name evidencing the storage of Inventory or other evidence of Bank's
prior rights in the Inventory. In any event, Borrower shall instruct any third
party to hold all such Inventory for Bank's account subject to Bank's security
interests and its instructions.
SECTION 9: EVENTS OF DEFAULTS
9.1 Events of Default. The occurrence or existence of any of the
following conditions or events shall constitute an "Event of Default" hereunder:
(a) Upon non-payment of any principal, interest or other sums
due to Bank under this Agreement or any other agreement or if any
guarantor shall fail to pay, when due, any indebtedness, obligation or
liability whatsoever of any such guarantor to Bank:
(b) Any default in the observance or performance of any of the
conditions, covenants or agreements of Borrower set forth in Sections 6,
7 or 8 of this Agreement;
(c) Default in the observance or performance of any of the other
conditions, covenants or agreements of Borrower set forth in this
Agreement (other than as provided in (a) or (b) above), and continuance
thereof for a period of thirty (30) days;
(d) Any representation or warranty made by Borrower, or by any
other Person (other than Bank), herein or in any other Loan Document
shall be untrue or incorrect in any material respect;
(e) Any default or event of default, as the case may be, in the
observance or performance of any of the conditions, covenants or
agreements of Borrower or any other Person (excluding Bank) set forth in
any of the Collateral Documents, or in any of the other Loan Documents,
and continuation thereof beyond any applicable period of grace or cure
provided with respect thereto;
19
21
(f) Any default by Borrower, any guarantor, or any of their
respective Subsidiaries, in the payment of any Debt (other than Debt
owing to Bank), or in the observance or performance of any conditions,
covenants or agreements related or given with respect thereto or any
other agreement, the failure to perform under which could reasonably be
expected to have a Material Adverse Effect and, in each such case,
continuation thereof beyond any applicable grace or cure period;
(g) The rendering of one or more judgments or decrees for the
payment of money in excess of the sum of two-hundred-fifty thousand
Dollars ($250,000.00), in the aggregate, against Borrower, any
guarantor, or any of their respective Subsidiaries, and such judgment(s)
or decree(s) shall remain unvacated, unbonded or unstayed, by appeal or
otherwise, for a period of thirty (30) consecutive days after the date
of entry;
(h) If there shall be any change in the management, ownership or
control of Borrower, whether by reason of incapacity, death,
resignation, termination or otherwise, which, in Bank's sole judgment,
shall have a Material Adverse Effect upon the future prospects for the
successful operation by Borrower, of its businesses as conducted before
such change, or its ability to pay and perform its liabilities and
obligations under this Agreement, the Indebtedness, or the Loan
Documents;
(i) The failure by Borrower, any guarantor, or any of their
respective Subsidiaries, to meet the minimum funding requirements under
ERISA with respect to any Pension Plan established or maintained by it;
the occurrence of any "reportable event", as defined in ERISA, which
could constitute grounds for termination by the PBGC of any Pension Plan
or for the appointment by the appropriate United States District Court
of a trustee to administer such Pension Plan, and such reportable event
is not corrected and such determination is not revoked within thirty
(30) days after notice thereof has been given to the plan administrator
or Borrower, any such Guarantor, or the respective Subsidiary(ies), as
the case may be; or the institution of any proceedings by the PBGC to
terminate any such Pension Plan or to appoint a trustee by the
appropriate United States District Court to administer any such Pension
Plan;
(j) If Borrower, any guarantor, or any of their respective
Subsidiaries, becomes insolvent or generally fails to pay, or admits in
writing its inability to pay, its debts as they mature, or applies for,
consents to, or acquiesces in the appointment of a trustee, receiver,
liquidator, conservator or other custodian for Borrower, any guarantor,
or any such Subsidiary, or a substantial part of their respective
property, or makes a general assignment for the benefit of creditors; or
files a voluntary petition in bankruptcy or in the absence of such
filing application, consent or acquiescence, a trustee, receiver,
liquidator, conservator or other custodian is appointed for Borrower,
any guarantor, or any of their respective Subsidiaries, or for a
substantial part of their respective property, and the same is not
discharged within thirty (30) days; or any bankruptcy, reorganization,
debt arrangement, or other proceedings under any bankruptcy or
insolvency law, or any dissolution or liquidation proceeding, is
instituted by or against Borrower, any guarantor, or any of their
respective Subsidiaries, and, if instituted against Borrower, such
guarantor, or any such Subsidiary, the same is consented to or
acquiesced in by Borrower, any guarantor, or any such Subsidiary, as the
case may be, or otherwise remains undismissed for thirty (30) days; or
any warrant of attachment is issued against any substantial part of the
property of Borrower, any guarantor or any of their respective
Subsidiaries, which is not released within thirty (30) days of service
thereof;
(k) If any Collateral Document shall be terminated, revoked, or
otherwise rendered void or unenforceable, in any case, without Bank's
prior written consent;
(l) If any circumstance occurs that has a Material Adverse
Effect, or if there is a material impairment of the value or priority of
Bank's security interests in the Collateral;
(m) If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant
or levy has not been removed, discharged or rescinded within ten (10)
days, or if Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its
business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower's assets, or
20
22
if a notice of lien, levy, or assessment is filed of record with respect
to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten
(10) days after Borrower receives notice thereof, provided that none of
the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good faith
contest by Borrower (provided that no credit extensions will be required
to be made during such cure period); or,
(n) 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.
SECTION 10: BANK'S RIGHTS AND REMEDIES
10.1 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 Indebtedness, 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 9.1(j), all Indebtedness 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;
(c) Terminate this Agreement as to any future liability or
obligation of Bank, but without affecting Bank's rights and security
interests in the Collateral, and the Indebtedness of Borrower to Bank;
(d) 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;
(e) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(f) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral. Borrower
agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes
Bank to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which
in Bank's determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's premises. Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge,
in order to exercise any of Bank's rights or remedies provided herein,
at law, in equity, or otherwise;
(g) Without notice to Borrower set off and apply to the
Indebtedness 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;
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral;
21
23
(i) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises)
as Bank determines is commercially reasonable, and apply the proceeds
thereof to the Indebtedness in whatever manner or order Bank deems
appropriate;
(j) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law;
(k) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower;
(l) Without limiting Bank's rights under any security interest,
Bank 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 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 agreement shall
inure to Bank's benefit, and Bank shall have the right and power to
enter into sublicense agreements with respect to all such rights with
third parties on terms acceptable to Bank;
(m) Borrower shall pay all Bank Expenses incurred in connection
with Bank's enforcement and exercise of any of its rights and remedies
as herein provided, whether or not suit is commenced by Bank.
10.2 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; (e) settle and adjust disputes and
claims respecting the Accounts directly with Account Debtors, for amounts and
upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (g) to transfer any intellectual property Collateral
into the name of Bank or a third party to the extent permitted under the
California Uniform Commercial Code, provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact, and each and every one of
Bank's rights and powers, being coupled with an interest, is irrevocable until
all of the Indebtedness has been fully repaid and performed and Bank's
obligation to provide Advances hereunder is terminated.
10.3 Accounts Collection. At any time from the date of this Agreement,
Bank may notify any Person owing funds to Borrower of Bank's security interest
in such funds and verify the amount of such Account. Borrower shall collect all
amounts owing to Borrower for Bank, receive in trust all payments as Bank's
trustee, and, if requested or required by Bank, immediately deliver such
payments to Bank in their original form as received from the account debtor,
with proper endorsements for deposit.
10.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 7.8 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.
22
24
10.5 Bank's Liability for Collateral. So long as Bank complies with its
obligations under Section 9207 of the Code. Bank shall not in any way or manner
be liable or responsible for: (a) the safekeeping of the Collateral, (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person whomsoever.
All risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
10.6 Waiver of Certain Laws. To the extent permitted by applicable law,
Borrower hereby agrees to waive, and does hereby absolutely and irrevocably
waive and relinquish, the benefit and advantage of any valuation, stay,
appraisement, extension or redemption laws now existing or which may hereafter
exist, which, but for this provision, might be applicable to any sale made under
the judgment, order or decree of any court, on any claim for interest on the
Notes, or any security interest or mortgage contemplated by or granted under or
in connection with this Agreement or the Indebtedness.
10.7 Waiver of Defaults. No Default or Event of Default shall be waived
by Bank except in a written instrument specifying the scope and terms of such
waiver and signed by an authorized officer of Bank, and such waiver and shall be
effective only for the specific time(s) and purpose(s) given. No single or
partial exercise of any right, power or privilege hereunder, nor any delay in
the exercise thereof, shall preclude other or further exercise of Bank's rights.
No waiver of any Default or Event of Default shall extend to any other or
further Default or Event of Default. No forbearance on the part of Bank in
enforcing any of Bank's rights or remedies hereunder or any of the other Loan
Documents shall constitute a waiver of any of its rights or remedies. Borrower
expressly agrees that this Section may not be waived or modified by Bank by
course of performance, estoppel or otherwise.
10.8 Receiver. Bank, in any action or suit to foreclose upon any of the
Collateral, shall be entitled, without notice or consent, and completely without
regard to the adequacy of any security for the Indebtedness, to the appointment
of a receiver of the business and premises in question, and of the rents and
profits derived therefrom. This appointment shall be in addition to any other
rights, relief or remedies afforded Bank. Such receiver, in addition to any
other rights to which he shall be entitled, shall be authorized to sell,
foreclose or complete foreclosure on Collateral contemplated by this Agreement
for the benefit of Bank, pursuant to provisions of applicable law.
10.9 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the UCC, 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.
10.10 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.
SECTION II: MISCELLANEOUS
11.1 Loans to Borrower. Bank and Borrower agree that any loans which
Bank in its sole discretion has made or may now or hereafter make to Borrower
shall be subject to the terms and conditions of this Agreement unless otherwise
agreed in writing by Bank and Borrower.
11.2 Accounting Principles. Except to the extent expressly stated to the
contrary herein, where the character or amount of any asset or liability or item
of income or expense is required to be determined, or any consolidation or other
accounting computation is required to be made for purposes of this Agreement, it
shall be done in accordance with GAAP, and all accounting terms not specifically
defined in this Agreement shall be construed in accordance with GAAP.
23
25
11.3 Audits of Collateral: Fees. Bank shall have the right from time to
time to audit Borrower's Accounts, Inventory, or other Collateral, provided that
such audits will be conducted upon reasonable notice. Borrower agrees to
reimburse Bank, on demand, for customary and reasonable fees and costs incurred
by Bank for such audits, and for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by its agents.
11.4 Taxes and Fees. Should any tax (other than a tax based upon the net
income of Bank) or recording or filing fee become payable in respect of this
Agreement or any of the Loan Documents, any of the Collateral, or any amendment,
modification or supplement hereof or thereof, Borrower agrees to pay such taxes
(or reimburse Bank therefor), together with any interest or penalties thereon,
and agree to hold Bank harmless with respect thereto.
11.5 Governing Law. This Agreement, each of the Notes, and each of the
other Loan and Collateral Documents, shall be deemed to have been delivered in
the State of California, and shall be governed by and construed and enforced in
accordance with the laws of the State of California, except to the extent that
the Uniform Commercial Code, other personal property law or real property law of
another jurisdiction where Collateral is located is applicable, and except to
the extent expressed to the contrary in any of the Loan Documents. Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
11.6 Costs and Expenses. Borrower shall pay Bank, on demand, all costs
and expenses, including, without limitation, reasonable attorneys' fees and
legal expenses, incurred by Bank in perfecting, revising, protecting or
enforcing any of its rights or remedies against Borrower or any Collateral, or
otherwise incurred by Bank in connection with any Default or Event of Default or
the enforcement of this Agreement, the Loan Documents, or the Indebtedness.
Following Bank's demand upon Borrower for the payment of any such costs and
expenses, and until the same are paid in full, the unpaid amount of such costs
and expenses shall constitute Indebtedness and shall bear interest at the Base
Rate.
11.7 Notices. All notices and other communications provided for herein
or in any document contemplated hereby, given hereunder or required by law to be
given, shall be in writing (unless expressly provided to the contrary). If
personally delivered, such notices shall be effective when delivered, and in the
case of mailing, such notices shall be effective two (2) Business Days after
sending by first class mail, postage prepaid, in each case addressed to the
parties as set forth on the signature page of this Agreement, or to such other
address as a party shall have designated to the other in writing in accordance
with this Section. The giving of at least five (5) days' notice before Bank
shall take any action described in any notice shall conclusively be deemed
reasonable for all purposes; provided, that this shall not be deemed to require
Bank to give such five (5) days' notice, or any notice, if not specifically
required to do so in this Agreement.
11.8 Further Action. Borrower, from time to time, upon written request
of Bank, will promptly make, execute, acknowledge and deliver, or cause to be
made, executed, acknowledged and delivered, all such further and additional
instruments, and promptly take all such further action as may be required to
carry out the intent and purpose of this Agreement, and to provide for the Loans
under and payment of the Notes, according to the intent and purpose herein and
therein expressed.
11.9 Successors and Assigns: Participation. This Agreement shall be
binding upon and shall inure to the benefit of Borrower and Bank and their
respective successors and assigns. The foregoing shall not authorize any
assignment or transfer by Borrower, of any of its respective rights, duties or
obligations hereunder, such assignments or transfers being expressly prohibited.
Bank, however, may freely assign, whether by assignment, participation or
otherwise, its rights and obligations hereunder, and is hereby authorized to
disclose to any such assignee or participant any financial or other information
in its knowledge or possession regarding Borrower, its Subsidiaries and
Affiliates, or the Indebtedness.
11.10 Indulgence. No delay or failure of Bank in exercising any right,
power or privilege hereunder or under any of the Loan Documents shall affect
such right, power or privilege, nor shall any single or partial exercise thereof
preclude any further exercise thereof, nor the exercise of any other right,
power or privilege available to
24
26
Bank. The rights and remedies of Bank hereunder are cumulative and are not
exclusive of any rights or remedies of Bank.
11.11 Amendment and Waiver. No amendment or waiver of any provision of
this Agreement or any Loan Document, nor consent to any departure by Borrower,
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Bank, and then such waiver or consent shall be effective only in
the specific instance(s) and for the specific time(s) and purpose(s) for which
given.
11.12 Severability. In case any one or more of the obligations of
Borrower under this Agreement, any Note, or any of the other Loan Documents
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining obligations of Borrower shall not
in any way be affected or impaired thereby, and such invalidity, illegality or
unenforceability in one jurisdiction shall not affect the validity, legality or
enforceability of the obligations of Borrower under this Agreement, the Notes or
any of the other Loan Documents in any other jurisdiction.
11.13 Headings and Construction of Terms. The headings of the various
sub-Sections hereof are for convenience of reference only and shall in no way
modify or affect any of the terms or provisions hereof. Where the context herein
requires, the singular number shall include the plural, and any gender shall
include any other gender.
11.14 Independence of Covenants. Each covenant hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenant, the fact that it would be permitted by an exception to, or
would be otherwise within the limitations of, another covenant shall not avoid
the occurrence of any Default or Event of Default.
11.15 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of Borrower made herein or
in any of the Loan Documents, or in any certificate, report, financial statement
or other document furnished by or on behalf of Borrower in connection with this
Agreement or any of the Loan Documents, shall be deemed to have been relied upon
by Bank, notwithstanding any investigation heretofore or hereafter made by Bank
or on Bank's behalf, and those covenants and agreements of Borrower set forth in
this Agreement (together with any other indemnities of Borrower contained
elsewhere in this Agreement or in any of the Loan Documents) shall survive the
termination of this Agreement and the repayment in full of the Indebtedness.
11.16 Effective Upon Execution. This Agreement shall become effective
upon the execution hereof by Bank and Borrower, and shall remain effective until
the Indebtedness under this Agreement and each of the Notes shall have been
repaid and discharged in full and no commitment to extend any credit hereunder
(whether optional or obligatory) remains outstanding.
11.17 Complete Agreement: Conflicts. This Agreement, the Notes, the
other Loan Documents, any agreements, certificates, or other documents given in
connection with the Indebtedness under this Agreement, and any commitment letter
previously issued by Bank with respect thereto (provided that in the event of
any inconsistency or conflict between this Agreement and the other Loan
Documents, on one hand, and such commitment letter, on the other hand, this
Agreement and the Loan Documents shall control), contain the entire agreement of
the parties thereto and supersedes all prior agreements and understandings
related to the subject matter hereof, and none of the parties shall be bound by
anything not expressed in writing. In the event that and to the extent that any
of the terms, conditions or provisions of any of the other Loan Documents are
inconsistent with or in conflict with any of the terms, conditions or provisions
of this Agreement, the applicable terms, conditions and provisions of this
Agreement shall govern and control.
11.18 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 (a) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower; (b) 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; (c) as required by law, regulations, rule or order, subpoena, judicial
order or similar
25
27
order; (d) as may be required in connection with the examination, audit or
similar investigation of Bank, and, (e) as Bank may deem appropriate in
connection with the exercise of any remedies hereunder. Confidential information
hereunder shall not include information that either: (i) 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,
(ii) 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.
11.19 WAIVER OF JURY TRIAL. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE
RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH
OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL
OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY
OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS
SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK
OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.
11.20 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.
WITNESS the due execution hereof as of the day and year first above
written.
BANK: BORROWER
COMERICA BANK-CALIFORNIA
By: /s/ XXXXXXXXX XXXXXXXXX By: /s/ XXXXXX XXXXXXXXXXXX
-------------------------------- ---------------------------------
Its: CORP. BANKING OFFICER Its: CEO
Address: 00 Xxxxxxx Xxxxxxxxx Address: 00000 Xxxxxx
Xxx Xxxx, XX 00000 Xxxxxx Xxxxxxx, XX 00000
Attn.: Xxxxxxxxx Xxxxxxxxx /s/ XXXXX XXXX
Telefax No.: 000-000-0000 ------------------------------------
DIRECTOR OF FINANCE
Attn.: Xxxxx Xxxx
Telefax No.: 000-000-0000
26
28
EXHIBIT A
The Collateral shall consist of all right, title and interest of a
Debtor in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including
without limitation, all machinery, fixtures, vehicles, and any interest in any
of the foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily our of a Debtor's 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 Debtor's
Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to a Debtor,
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 a Debtor and Debtor's Books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Debtor's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protections of semiconductor ships, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Any and all claims, rights and interest in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
(h) Notwithstanding the foregoing, the term "Collateral" shall not
include any property, rights or licenses to the extent the granting of a
security interest therein (i) would be contrary to applicable law or (ii) is
prohibited by or would constitute a default under any agreement or document
governing such property, rights or licenses (but only to the extent such
prohibition is enforceable under applicable law, including without limitation
Section 9318 of the Code); provided that immediately and automatically upon the
ineffectiveness, lapse or termination of any such prohibition or restriction,
the Collateral shall include such property, rights and licenses, and Borrower
shall be deemed to have granted a security interest in all such rights and
interests as if such prohibition or restriction had never been in effect.
27
29
SCHEDULE 1
Permitted Liens and Capital Leases
----------------------------------
CALIFORNIA
Debtor: Avanex Corporation - Fremont, CA
Instrument Number Filing Date Secured Party
----------------- ----------- -------------
9817360855 06/19/1998 Hewlett-Packard Company Finance & Remarketing Division
0000000000 12/16/1998 Phoenix Warehouse II, Inc.
9835560292 12/16/1998 Phoenix Warehouse II, Inc. [amendment 5/6/99]
9907160504 03/04/1999 Hewlett-Packard Company Finance & Remarketing Division
9907160502 03/04/1999 Hewlett-Packard Company Finance & Remarketing Division
9907860782 03/11/1999 Phoenix Warehouse II, Inc.
9908160297 03/11/1999 Phoenix Warehouse II, Inc.
9916960704 06/14/1999 Phoenix Warehouse II, Inc.
Debtor: Avanex Corporation - Richardson, TX
Instrument Number Filing Date Secured Party
----------------- ----------- -------------
9907860782 03/11/1999 Phoenix Warehouse II, Inc.
9908160297 03/11/1999 Phoenix Warehouse II, Inc.
9916960704 06/14/1999 Phoenix Warehouse II, Inc.
Texas
Debtor: Avanex Corporation - Richardson, TX
Instrument Number Filing Date Secured Party
----------------- ----------- -------------
9900043848 03/04/1999 Hewlett Packard Company Finance & Remarketing Division
9900043849 03/04/1999 Hewlett Packard Company Finance & Remarketing Division
28
30
SCHEDULE 2
SUBSIDIARY COMPANIES
There are no subsidiary companies.
