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EXHIBIT 10.16
XXXXX.XXX NETWORKS
LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
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1. DEFINITIONS AND CONSTRUCTION.........................................................1
1.1 Definitions...................................................................1
1.2 Accounting Terms.............................................................10
2. LOAN AND TERMS OF PAYMENT...........................................................10
2.1 Credit Extensions............................................................10
2.2 Overadvances.................................................................11
2.3 Interest Rates, Payments, and Calculations...................................12
2.4 Crediting Payments...........................................................12
2.5 Fees.........................................................................13
2.6 Term.........................................................................13
3. CONDITIONS OF LOANS.................................................................13
3.1 Conditions Precedent to Initial Credit Extension.............................13
3.2 Conditions Precedent to all Credit Extensions................................13
4. CREATION OF SECURITY INTEREST.......................................................14
4.1 Grant of Security Interest...................................................14
4.2 Delivery of Additional Documentation Required................................14
4.3 Right to Inspect.............................................................14
5. REPRESENTATIONS AND WARRANTIES......................................................14
5.1 Due Organization and Qualification...........................................14
5.2 Due Authorization: No Conflict...............................................14
5.3 No Prior Encumbrances........................................................15
5.4 Bona Fide Eligible Accounts..................................................15
5.5 Merchantable Inventory.......................................................15
5.6 Name; Location of Chief Executive Office.....................................15
5.7 Litigation...................................................................15
5.8 No Material Adverse Change in Financial Statements...........................15
5.9 Regulatory Compliance........................................................15
5.10 Environmental Condition......................................................16
5.11 Taxes........................................................................16
5.12 Subsidiaries ................................................................16
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TABLE OF CONTENTS
(CONTINUED)
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5.13 Government Consents..........................................................16
5.14 Full Disclosure..............................................................16
6. AFFIRMATIVE COVENANTS...............................................................16
6.1 Good Standing................................................................16
6.2 Government Compliance........................................................17
6.3 Financial Statements, Reports, Certificates..................................17
6.4 Inventory; Returns...........................................................17
6.5 Taxes........................................................................17
6.6 Insurance....................................................................18
6.7 Principal Depository.........................................................18
6.8 Quick Ratio..................................................................18
6.9 Net Sales....................................................................18
6.10 Profitability................................................................18
6.11 Tangible Net Worth...........................................................18
6.12 Registration of Intellectual Property Rights.................................19
6.13 Further Assurances...........................................................19
7. NEGATIVE COVENANTS..................................................................19
7.1 Dispositions.................................................................19
7.2 Change in Business...........................................................20
7.3 Mergers or Acquisitions......................................................20
7.4 Indebtedness.................................................................20
7.5 Encumbrances.................................................................20
7.6 Distributions................................................................20
7.7 Investments..................................................................20
7.8 Transactions with Affiliates.................................................20
7.9 Subordinated Debt............................................................20
7.10 Inventory....................................................................20
7.11 Compliance...................................................................21
8. EVENTS OF DEFAULT...................................................................21
8.1 Payment Default .............................................................21
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TABLE OF CONTENTS
(CONTINUED)
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8.2 Covenant Default.............................................................21
8.3 Material Adverse Change......................................................21
8.4 Attachment...................................................................21
8.5 Insolvency...................................................................22
8.6 Other Agreements.............................................................22
8.7 Subordinated Debt............................................................22
8.8 Judgments....................................................................22
8.9 Misrepresentations...........................................................22
9. BANK'S RIGHTS AND REMEDIES..........................................................22
9.1 Rights and Remedies..........................................................22
9.2 Power of Attorney............................................................23
9.3 Accounts Collection..........................................................24
9.4 Bank Expenses................................................................24
9.5 Bank's Liability for Collateral..............................................24
9.6 Remedies Cumulative..........................................................24
9.7 Demand; Protest..............................................................24
10. NOTICES.............................................................................25
11. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER..........................................25
12. GENERAL PROVISIONS..................................................................26
12.1 Successors and Assigns.......................................................26
12.2 Indemnification..............................................................26
12.3 Time of Essence..............................................................26
12.4 Severability of Provisions...................................................26
12.5 Amendments in Writing, Integration...........................................26
12.6 Counterparts.................................................................26
12.7 Survival.....................................................................26
13. JUDICIAL REFERENCE..................................................................26
14. CONFIDENTIALITY.....................................................................28
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This LOAN AND SECURITY AGREEMENT is entered into as of April 9, 1998, by
and between IMPERIAL BANK ("Bank") and XXXXX.XXX NETWORKS (`"Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a cash advance under the Revolving
Facility, including Nonformula Advances.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; reasonable Collateral audit fees; and Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents (including fees and expenses of appeal), incurred before, during and
after an Insolvency Proceeding, whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" means an amount equal to eighty percent (80%) of
Eligible Accounts (as hereinafter defined) with reference to the most recent
Borrowing Base Certificate delivered by Borrower.
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"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to
Three Million Dollars ($3,000,000).
"Contingent Obligation"' means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Term Advance, or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness
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is renewable or extendible at the option of Borrower or any Subsidiary to a date
more than one year from the date of determination.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank as a
consequence of any Collateral audits done pursuant to Section 6.3 in Bank's
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, twenty-five
percent (25%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, xxxx and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates. whose total obligations to Borrower exceed twenty
percent (20%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
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(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that (i) are supported by one or more letters of credit in an amount
and of a tenor, and issued by a financial institution, acceptable to Bank, or
(ii) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Term Advance" has the meaning set forth in Section 2.1.2.
"Equipment Line" means a credit extension of Five Hundred
Thousand Dollars ($500,000).
"Equipment Maturity Date" means June 30, 2001.
"Equity Event" means the receipt by Borrower of not less than
$10,000,000 of proceeds from the sale or issuance of its equity securities.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief
"Intellectual Property Collateral" means:
(l) Copyrights, Trademarks and Patents;
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(m) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(n) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(o) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to xxx for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(p) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(q) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(r) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
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"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Nonformula Advance" or "Nonformula Advances" means a cash
advance under the Revolving Facility in addition to those Advances made with
reference to the Borrowing Base.
"Nonformula Allowance" means $500,000; provided that Nonformula
Allowance shall mean $1,000,000 upon receipt by Bank of evidence that Borrower
received revenue of not less than $1,500,000 for the fiscal quarter ending June
30, 1998; provided further that Nonformula Allowance shall mean $1,500,000 upon
either (a) confirmation satisfactory to Bank from BT Xxxx Xxxxx of commitments
to invest not less than $10,000,000 in Borrower, or (b) signed and accepted term
sheets from Persons acceptable to Bank upon terms acceptable to Bank relating to
the sale or issuance of Borrower's equity securities generating proceeds to
Borrower of not less than $10,000,000. The Nonformula Allowance shall be zero on
the earlier of September 30, 1998 or the date of the Equity Event.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement (not including the Warrant), whether absolute or contingent, due
or to become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
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(c) Indebtedness secured by a lien described in clause (c) or (d)
of the defined term "Permitted Liens," provided such Indebtedness does not
exceed the lesser of the cost or fair market value of the equipment financed
with such Indebtedness;
(d) Subordinated Debt;
(e) Indebtedness at any time outstanding in an amount not
exceeding $100,000;
(f) Indebtedness to trade creditors incurred in the ordinary
course of business;
(g) Contingent obligations of Borrowers consisting of guarantees
(and other credit support) of the obligations of vendors and suppliers of
Borrower in respect of transactions entered into in the ordinary course of
business;
(h) Indebtedness with respect to domestic capital lease
obligations (including leases of real property);
(i) Prepaid royalties and deferred revenue in connection with
prepaid support services; and
(j) Extensions, renewals, refundings, refinancings,
modifications, amendments and restatements of any of the items of Permitted
Indebtedness (a) through (i) above, provided that the principal amount thereof
is not increased or the terms thereof are not modified to impose more burdensome
terms upon Borrower.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having rating of at least A-2 or P-2 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, (iv) money and (v) Investments made in connection with
transactions permitted and Section 7.3;
(c) Extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(d) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(e) 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;
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(f) Investments consisting of (i) of employees, officers and
directors of Borrower 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, (iii) loans to employees, officers or directors
relating to the purchase of equity securities of Borrower, and (iv) other loans
to officers and employees approved by the Board of Directors; and
(g) Other Investments aggregating not in excess of $100,000 at
any time.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any leases,
subleases, licenses, and sublicenses do not prohibit the grant of the security
interest granted hereunder;
(e) Liens securing capital lease obligations on assets subject to
such capital leases;
(f) Liens on equipment ]eased by Borrower pursuant to an
operating lease (including sale-leaseback transactions) 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
arising from UCC financing statements regarding leases permitted by this
Agreement);
(g) Liens arising from judgments, decrees or attachments to the
extent and only so long as such judgment, decree or attachment has not caused or
resulted in an Event of Default,
(h) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar Liens affecting real
property not interfering in any material respect with the ordinary conduct of
the business of Borrower;
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(i) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with the
importation of goods;
(j) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution;
(k) Liens, not otherwise permitted, which Liens do not in the
aggregate exceed $100,000 at any time; and
(l) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (k) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 360 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Operating Officer, the Chief Financial Officer and the Controller of
Borrower.
"Revolving Maturity Date" means September 30, 1998, provided
that, upon receipt by Bank of evidence that Borrower has received not less than
$10,000,000 from the sale or issuance of its equity securities, Revolving
Maturity Date shall mean the day before the first anniversary of the Closing
Date.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue Advances, as specified in Section 2.1.1 hereof.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time
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as of which any determination is being made, be owned by Borrower, either
directly or through an Affiliate.
"Tangible Net Worth"' means at any date as of which the amount
thereof shall be determined, the financial statement net worth of Borrower and
its Subsidiaries minus intangible assets, plus Subordinated Debt, on a
consolidated basis determined in accordance with GAAP.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
Borrower promises to pay to the order of Bank, in ]awful money of
the United States of America, the aggregate unpaid principal amount of all
Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Credit Extensions at rates in
accordance with the terms hereof
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, Borrower may request Advances in an aggregate outstanding amount not
to exceed the lesser of (i) the Committed Revolving Line or (ii) the Borrowing
Base. Borrower may request additional Nonformula Advances in an amount not to
exceed the Nonformula Allowance, provided the sum of the aggregate outstanding
Advances and Nonformula Advances may not at any time exceed the Committed
Revolving Line. Borrower shall repay all Nonformula Advances on the earlier of
the Equity Event or September 30, 1998. Subject to the terms and conditions of
this Agreement, amounts borrowed pursuant to this Section 2.1.1 may be repaid
and reborrowed at any time prior to the Revolving Maturity Date, at which time
all Advances under this Section 2.1.1 shall be immediately due and payable.
Borrower may prepay any Advances without penalty or premium.
(b) Whenever Borrower desires an Advance, Borrower will
notify by facsimile transmission or telephone no later than 3:00 p.m. Pacific
Time, on the Business Day that the Advance is to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially in the
form of Exhibit B hereto. Bank is authorized to make Advances under this
Agreement, based upon instructions received from a Responsible Officer or a
designee of a Responsible Officer, or without instructions if in Bank's
discretion
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such Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1.1 to Borrower's deposit account.
2.1.2 Term Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through the Revolving Maturity Date,
Bank agrees to make advances (each a "Term Advance" and, collectively, the "Term
Advances") to Borrower in an aggregate outstanding amount not to exceed the
Equipment Line. The initial Term Advance shall be equal to the amount that
Borrower owes to Silicon Valley Bank on the Closing Date. Borrower shall use the
proceeds of such initial Term Advance to repay all amounts that it owes to
Silicon Valley Bank. Each subsequent Term Advance shall not exceed ninety
percent (90%) of the invoice amount of equipment and re-assignable software
approved by Bank from time to time (which Borrower shall, in any case, have
purchased after January 1, 1998), excluding taxes, shipping, warranty charges,
freight discounts and installation expense, provided that Term Advances for
software and telephone equipment shall not exceed seventy percent (70%) of the
invoice amount therefor, and the aggregate Term Advances for software and
telephone equipment shall in no case exceed $100,000.
(b) Interest shall accrue from the date of each Term
Advance at the rate specified in Section 2.3(a), and shall be payable monthly on
the twenty-sixth day of each month through the Revolving Maturity Date. Any Term
Advances that are outstanding on the Revolving Maturity Date shall be payable in
equal monthly installments of principal, plus all accrued interest, beginning on
April 26, 1999, and continuing on the same day of each month thereafter through
the Equipment Maturity Date, at which time all amounts due under this Section
2.1.2 and any other amounts due under this Agreement shall be immediately due
and payable. Term Advances, once repaid, may not be reborrowed. Borrower may
prepay any Term Advances without penalty or premium.
(c) When Borrower desires to obtain an Term Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Pacific Time one (1)
Business Day before the day on which the Term Advance is to be made. Such notice
shall be substantially in the form of Exhibit B. The notice shall be signed by a
Responsible Officer or its designee and include a copy of the invoice for any
Equipment to be financed.
2.2 Overadvances. The aggregate outstanding balance under the Revolving
Facility in excess of the Borrowing Base shall be deemed to consist of
Nonformula Advances. If any Advances hereunder exceed the lesser of the
Borrowing Base plus the Nonformula Allowance or the Committed Revolving Line,
Borrower shall immediately pay to Bank, in cash, the amount of such excess. If
at any time the sum of the outstanding Advances and Term Advances exceeds
$3,000,000, Borrower shall immediately pay to Bank, in cash, the amount of such
excess, which Bank shall apply against outstanding Advances.
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2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances and Nonformula Advances. Except as set forth
in Section 2.3(b), the Advances and Nonformula Advances shall bear interest, on
the outstanding daily balance thereof, at a rate equal to the Prime Rate.
(ii) Term Advances. Except as set forth in Section 2.3(b),
the Term Advances shall bear interest, on the outstanding daily balance thereof,
at a rate equal to One Half Percent (0.5%) above the Prime Rate.
(b) Late Fee: Default Rate. If any payment is not made within ten
(10) days after the date such payment is due, Borrower shall pay Bank a late fee
equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount
or (ii) the maximum amount permitted to be charged under applicable law. All
Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to five (5) percentage
points above the interest rate applicable immediately prior to the occurrence of
an Event of Default.
(c) Payments. Interest hereunder shall be due and payable on the
twenty-sixth calendar day of each month during the term hereof. Bank shall, at
its option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Revolving
Line, in which case those amounts shall thereafter accrue interest at the rate
then applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder. Bank shall deliver to Borrower
statements of account in the ordinary course of business reflecting charges made
hereunder.
(d) Computation. In the event the Prime Rate is changed from time
to time hereafter, the applicable rate of interest hereunder shall be increased
or decreased effective as of the day the Prime Rate is changed, by an amount
equal to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment shall be immediately applied to conditionally
reduce Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when presented for payment. Notwithstanding
anything to the contrary contained herein, any wire transfer or payment received
by Bank after 1:00 p.m. California time shall be deemed to have been received by
Bank as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a
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Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On the Closing Date, a Facility Fee equal to
Four Thousand Dollars ($4,000), which shall be nonrefundable;
(b) Bank Expenses. On the Closing Date, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses and, after the Closing Date, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.6 Term. This Agreement shall become effective on the Closing Date and,
subject to Section 12.7, shall continue in full force and effect for a term,
ending on the Equipment Maturity Date. Notwithstanding the foregoing, Bank shall
have the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a financing statement (Form UCC-1);
(d) an intellectual property security agreement;
(e) a warrant to purchase stock (the "Warrant");
(f) an audit of the Accounts, the results of which shall be
satisfactory to Bank; and
(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
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(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension
(provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date). The making of each Credit Extension shall be deemed
to be a representation and warranty by Borrower on the date of such Credit
Extension as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof
subject to Permitted Liens.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, at its own expense, except during the continuance
of an Event of Default and as specified in Sections 6.3 and 6.4, upon reasonable
prior notice, from time to time during Borrower's usual business hours but no
more than once a year (unless an Event of Default has occurred and is
continuing), to inspect Borrower's Books and to make copies thereof and to
check, test, and appraise the Collateral in order to verify Borrower's financial
condition or the amount, condition of, or any other matter relating to, the
Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is
a corporation duly existing under the laws of its state of incorporation and
qualified and licensed to do business in any state in which the conduct of its
business or its ownership of property requires that it be so qualified, except
where failure to so qualify would not have a Material Adverse Effect.
5.2 Due Authorization: No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in
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conflict with nor constitute a breach of any provision contained in Borrower's
Articles of Incorporation or Bylaws, nor will they constitute an event of
default under any material agreement to which Borrower is a party or by which
Borrower is bound. Borrower is not in default under any agreement to which it is
a party or by which it is bound, which default is reasonably likely to have a
Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor,
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects, except for
Inventory for which adequate reserves have been made.
5.6 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision is reasonably
likely to have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that are 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.
5.9 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result In Borrower's incurring
any liability that is reasonably likely to have a Material Adverse Effect.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). Borrower has compiled with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not
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violated any statutes, laws, ordinances or rules applicable to it, violation of
which would be reasonably likely to have a Material Adverse Effect.
5.10 Environmental Condition. Except as disclosed in the Schedule, none
of Borrower's or any Subsidiary's properties or assets has ever been used by
Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous
owners or operators, in the disposal of, or to produce, store, handle, treat,
release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; to the best of Borrower's knowledge, none of
Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental Protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental. Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.11 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.12 SUBSIDIARIES. Borrower does not own any stock, partnership interest
or other equity securities of any Person, except for Permitted Investments.
5.13 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted, the
failure to obtain which would be reasonably likely to have a Material Adverse
Effect.
5.14 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
is reasonably likely to have a Material Adverse Effect. Borrower shall maintain,
and shall cause each of its Subsidiaries to maintain, to the extent consistent
with prudent management of Borrower's business, in force all licenses,
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approvals and agreements, the loss of which would be reasonably likely to have a
Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which would be reasonably likely to have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver
to Bank: (a) as soon as available, but in any event within twenty-five (25) days
after the end of each calendar month, a company prepared consolidated and
consolidating balance sheet and income statement covering Borrower's
consolidated operations during such period, in a form and certified by a
Responsible Officer; (b) as soon as available, but in any event within ninety
(90) days after the end of Borrower's fiscal year, unqualified audited
consolidated and consolidating financial statements of Borrower prepared in
accordance with GAAP, consistently applied; (c) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that is reasonably likely to result in damages or costs to
Borrower or any Subsidiary of Fifty Thousand Dollars ($50,000) or more; and (d)
such budgets, sales projections, operating plans or other financial information
as Bank may reasonably request from time to time generally prepared by Borrower
in the ordinary course of business.
Within fifteen (15) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto, together with
aged listings of accounts receivable and accounts payable.
Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts and appraise Collateral at Borrower's expense, provided that
such audits will be conducted no more often than every twelve (12) months unless
an Event of Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects except for Inventory for
which adequate reserves have been made. Returns and allowances, if any, as
between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Fifty Thousand Dollars
($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate
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certificates attesting to the payment or deposit thereof, and Borrower will
make, and will cause each Subsidiary to make, timely payment or deposit of all
material tax payments and withholding taxes required of it by applicable laws,
including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state and federal income taxes, and will, upon request,
furnish Bank with proof satisfactory to Bank indicating that Borrower or a
Subsidiary has made such payments or deposits; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of such payment
is contested in good faith by appropriate proceedings and is reserved against
(to the extent required by GAAP) by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
over $50,000 payable under any such policy shall, at the option of Bank, be
payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 Quick Ratio. Beginning with the earlier of the date of the Equity
Event or September 30, 1999, Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Current Liabilities, excluding deferred
revenue, of at least 1.50 to 1.00.
6.9 Net Sales. Unless the Equity Event shall have first occurred,
Borrower shall provide evidence satisfactory to Bank of net sales for the fiscal
quarter ending June 30, 1998 of not less than $1,350,000.
6.10 Profitability. Before the occurrence of the Equity Event, Borrower
shall not suffer a loss in any month in excess of $1,000,000. After the earlier
of September 30, 1998 or at the date of the Equity Event, Borrower shall not
suffer a loss in any fiscal quarter in excess of $3,000,000.
6.11 Tangible Net Worth. After the earlier of September 30, 1998 or the
date of the Equity Event, Borrower shall maintain, as of the last day of each
month, a Tangible Net Worth of at least $5,000,000.
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6.12 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered on an
expedited basis (to the extent not already registered) with the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable, those intellectual property rights listed on Exhibits A, B and C to
the Intellectual Property Security Agreement delivered to Bank by Borrower in
connection with this Agreement within thirty (30) days of the date of this
Agreement. Borrower shall register or cause to be registered with The United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, those additional intellectual property rights developed or acquired
by Borrower from time to time in connection with any product prior to the sale
or licensing of such product to my third party, including without limitation
major revisions or additions to the intellectual property rights listed am such
Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) use reasonable commercial efforts to
Protect, defend and maintain the validity and enforceability of the Trademarks,
Patents and Copyrights, (ii) use its best efforts to detect infringements of the
Trademarks, Patents and Copyrights and promptly advise Bank in writing of
infringements detected and (iii) not allow any material Trademarks, Patents or
Copyrights to be abandoned, forfeited or dedicated to the public without the
written consent of Bank, which shall not be unreasonably withheld.
(d) Bank may audit Borrower's Intellectual Property Collateral at
Bank's expense, unless an Event of Default is continuing, to confirm compliance
with this Section 6.12, provided such audit may not occur more often than once
per year, unless an Event of Default has occurred and is continuing. Bank shall
have the right, but not the obligation, to take, at Borrower's sole expense, any
actions that Borrower is required under this Section 6.12 to take but which
Borrower fails to take, after fifteen (15) days' notice to Borrower. Borrower
shall reimburse and indemnify Bank for all reasonable costs and reasonable
expenses incurred in the reasonable exercise of its rights under this Section
6.12.
6.13 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Credit Extensions,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its
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Subsidiaries; (iii) Transfers of surplus, worn-out or obsolete Equipment; or
(iv) other transfers in an aggregate amount per year of not more than $100,000.
7.2 Change in Business. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto). Borrower will not, without thirty (30) days written
notification to Bank, relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income. including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, except that Borrower may repurchase the stock of former employees
pursuant to stock repurchase agreements as long as an Event of Default does not
exist or would not exist after giving effect to such repurchase.
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory; provided, however, that Borrower may deposit software
code in escrow for customers in the ordinary course of business. Except for
Inventory sold in the ordinary course of business and except for such other
locations as Bank may approve in writing, Borrower shall keep the Inventory only
at the location set forth in Section 10 hereof and such other locations of which
Borrower gives Bank prior written notice and as to which Borrower signs and
files a financing statement where needed to perfect Bank's security interest.
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7.11 Compliance. Become an "investment company" or be controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose. Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation is reasonably likely to have a Material Adverse
Effect or a material adverse effect on the Collateral or the priority of Bank's
Lien on the Collateral, or permit any of its Subsidiaries to do any of the
foregoing.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower falls to pay, when due, any of the
Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation under
Article 6 or violates any of the covenants contained in Sections 6.8, 6.9, 6.10,
6.11 or 6.12 of this Agreement, or fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Credit Extensions will
be required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse change
in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within twenty (20) 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 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,
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26
municipal, or governmental agency, and the same is not paid within twenty (20)
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);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within forty-five (45) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that is reasonably likely to have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of thirty (30) days (provided that no Credit Extensions
will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement existed at the time such representation and warrant was made in any
warranty or representation set forth herein or in any certificate delivered to
Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to
enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
22.
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(d) Make such payments and do such acts as Bank considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank's determination
appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Set off and apply to the Obligations any and all (i) balances
and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to
or for the credit or the account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, furnish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(g) 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 any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or xxxx of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower's policies of insurance; and (f)
settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which Bank determines to be
reasonable; provided Bank may exercise such power of attorney to sign the name
of Borrower on any of the documents described in Section 4.2 regardless of
whether an Event of Default has occurred. The
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appointment of Bank as Borrower's attorney in fact, and each and every one of
Bank's rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following after
reasonable notice to Borrower: (a) make payment of the same or any part thereof,
(b) set up such reserves under the Revolving Facility as Bank deems necessary to
protect Bank from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type discussed in Section 6.6 of this
Agreement, and take any action with respect to such policies as Bank deems
prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower, except
for those caused by Bank's gross negligence or willful misconduct.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
24.
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10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: Xxxxx.xxx Networks
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Attn: Xxxx Xxxx
Fax: (000) 000-0000
If to Bank: Imperial Bank
000 Xxxxxxx Xxxxxxx
Xxx Xxxx, XX 00000-0000
Attn: Corporate Banking Center
FAX: (000) 000-0000
with a copy to: Imperial Bank
0000 Xxxx Xxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxx Xxxxx
FAX: (000) 000-0000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE: JURY TRIAL WAIVER.
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the nonexclusive
jurisdiction of the state and Federal courts located in the County of Santa
Xxxxx, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
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12. GENERAL PROVISIONS.
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower Without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold harmless
Bank and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement; and (b) all
losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a
result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
13. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this
Agreement, which controversy, dispute or claim is not settled in writing within
thirty (30) days after the "Claim Date" (defined as the date on which a party
subject to this Agreement gives
26.
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written notice to all other parties that a controversy, dispute or claim
exists), will be settled by a reference proceeding in California in accordance
with the provisions of Section 638 et seq. of the California Code of Civil
Procedure, or their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any controversy, dispute or claim
concerning this Agreement, including whether such controversy, dispute or claim
is subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against each other
in any court or jurisdiction other than the Superior Court in the County where
the Real Property, if any, is located or Santa Xxxxx County if none (the
"Court"). The referee shall be a retired Judge of the Court selected by mutual
agreement of the parties, and if they cannot so agree within forty-five (45)
days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of the Court
(or any subsequently enacted Rule). Each party shall have one peremptory
challenge pursuant to CCP Section 170.6. The referee shall (a) be requested to
set the matter for hearing within sixty (60) days after the date of selection of
the referee and (b) try any and all issues of law or fact and report a statement
of decision upon them, if possible, within ninety (90) days of the Claim Date.
Any decision rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP Section 644 in any court in the State
of California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a petition
for a hearing and/or trial. All discovery permitted by this Agreement shall be
completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of a
party's refusal to provide requested discovery or unavailability of a witness
due to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon seven (7)
days written notice, and request for production or inspection of documents which
cannot be resolved by the parties shall be submitted to the referee as provided
herein. The Superior Court is empowered to issue temporary and/or provisions
remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
(c) The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that re the
subject of the reference. The parties hereto
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expressly reserve the right to contest or appeal from the final judgment or any
appealable order or appealable judgment entered by the referee. The parties
hereto expressly reserve the right to findings of fact, conclusions of laws, a
written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a reference
proceeding under these provisions.
(d) In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
14. CONFIDENTIALITY.
In handling any confidential information Bank shall exercise the same
degree of care that it exercises with respect to its own proprietary information
of the same types to maintain the confidentiality of any non-public information
thereby received or received pursuant to this Agreement except that disclosure
of such information may be made (i) to the subsidiaries or affiliates of Bank in
connection with their present or prospective business relations with Borrower,
(ii) to prospective transferees or purchasers of any interest in the Advances or
Term Advances, provided that they have entered into a comparable confidentiality
agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order, (iv) as may be required in connection with the examination, audit or
similar investigation of Bank and (v) as Bank may determine in connection with
the enforcement of any remedies hereunder. Confidential information hereunder
shall not include information that either: (a) is in the public domain or in the
knowledge or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b) is
disclosed to Bank by a third party, provided Bank does not have actual knowledge
that such third party is prohibited from disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
XXXXX.XXX NETWORKS
By: /s/ Xxxxxxx Xxxx
-------------------------------
Title: CFO
----------------------------
IMPERIAL BANK
By: /s/ IMPERIAL BANK
-------------------------------
Title:
-----------------------------
28.
33
THE LIST OF DEBTS AS OF MARCH 31, 1998
Accounts Payable $327,239.94
Silicon Valley Bank Loan $240,218.97
Venture Lease Payable $ 49,618.94
Assumed liabilities (4/20/98) $123,672.43
TOTAL $740,750.28
29.
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EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(i) all accounts receivable, accounts, chattel paper, contract rights
(including, without limitation, royalty agreements, license agreements and
distribution agreements), documents, instruments, money, deposit accounts and
general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(ii) all software, computer source codes and other computer programs
(collectively, the "Software Products"), and all common law and statutory
copyrights and copyright registrations, applications for registration, now
existing or hereafter arising, United States of America and foreign, obtained or
to be obtained on or in connection with the Software Products, or any parts
thereof or any underlying or component elements of the Software Products
together with the right to copyright and all rights to renew or extend such
copyrights and the right (but not the obligation) of Bank (herein referred to as
"Bank" or "Secured Party") to xxx in its own name and/or the name of the Debtor
for past, present and future infringements of copyright;
(iii) all goods, including, without limitation, equipment and inventory
(including, without limitation, all export inventory);
(iv) all guarantees and other security therefor;
(v) all trademarks, service marks, trade names and service names and the
goodwill associated therewith;
(vi) (a) all patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements including, without limitation, the
inventions and improvements described and claimed therein, (b) licenses
pertaining to any patent whether Debtor is licensor or licensee, (c) all income,
royalties, damages payments, accounts receivable now or hereafter due, and/or
payable under and with respect thereto, including, without limitation, damages
and payments for past, present or future infringements thereof, (d) the right
(but not the obligation) to xxx for past, present and future infringements
thereof, (e) all rights corresponding thereto throughout the world in all
jurisdictions in which such patents have been issued or applied for, and (f) the
reissues, divisions, continuations, renewals, extensions and
continuations-in-part with any of the foregoing (all of the foregoing patents
and applications and interests under patent license agreements, together with
the items described in clauses (a) through (f) in this paragraph are sometimes
herein individually and collectively referred to as the "Patents"); and
(vii) all products and proceeds, including, without limitation,
insurance proceeds, of any of the foregoing.
30.
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EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., Pacific Time
TO: EMERGING GROWTH INDUSTRIES DATE:_________________________
FAX#: (000) 000-0000 TIME:_________________________
FROM:__________________________________________________________________________
CLIENT NAME BORROWER
REQUESTED BY:__________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:__________________________________________________________
PHONE NUMBER:__________________________________________________________________
FROM ACCOUNT # ________________________ TO ACCOUNT #_______________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $________________________
PRINCIPAL PAYMENT (ONLY) $________________________
INTEREST PAYMENT (ONLY) $________________________
PRINCIPAL AND INTEREST (PAYMENT) $________________________
OTHER INSTRUCTIONS:_____________________________________________________________
All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for and Advance confirmed by this Borrowing
Certificate; provided. however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
________________________________________________________________________________
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
__________________________________ __________________________________
Authorized Requester Phone #
__________________________________ __________________________________
Authorized Requester Phone
_______________________________________________________________________________
Authorized Signature (Blank)
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EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Xxxxx.xxx Networks Lender: Imperial Bank
Commitment Amount: $3,000,000
ACCOUNTS RECEIVABLE:
1. Accounts Receivable Book Value as of _____ $_____________________
2. Additions (please explain on reverse) $_____________________
3. TOTAL ACCOUNTS RECEIVABLE $_____________________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_____________________
5. Balance of 25% over 90 day accounts
6. Concentration Limits
7. Foreign Accounts
8. Governmental Accounts
9. Contra Accounts
10. Demo Accounts
11 Intercompany/Employee Accounts
12. Other (please explain on reverse)
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
14. Eligible Accounts (#3 minus #13) $_____________________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_____________________
NONFORMULA ADVANCES
16. Nonformula Advances and Term Advances $_____________________
BALANCES
17. Maximum Loan Amount $3,000,000
18 Total Funds Available [Lesser of #15 plus $_____________________
Nonformula Allowance or #17]
19. Present balance owing on Line of Credit $_____________________
20. Outstanding under Sublimits ( ) $_____________________
21. RESERVE POSITION (#18 minus #19 and #20) $_____________________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Imperial Bank.
Women. com Networks
By:_______________________________
Authorized Signer
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EXHIBIT D
COMPLIANCE CERTIFICATE
TO: IMPERIAL BANK
FROM: Xxxxx.xxx Networks
The undersigned authorized officer of Xxxxx.xxx Networks hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending _____________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies"
column.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Monthly financial statements Monthly within 25 Yes No
days
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 15 Yes No
days
A/R Audit Initial and Semi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL No COMPLIES
------------------ -------- ------ -- --------
Maintain on a Monthly 1.50:1.00 _______:1.00 Yes No
Basis: Minimum Quick
Ratio1
Minimum 6/30/98 Net Sales $1,500,000 $__________ Yes No
Minimum Profit $2 ___________ Yes No
(Quarterly)
Minimum TNW $5,000,000 $__________ Yes No
1 Less deferred revenue
2 Pre-Equity Event monthly loss <$1,000,000; post-Equity Event quarterly
loss
<$3,000,000
Comments Regarding Exceptions: See Attached.
Sincerely, BANK USE ONLY
Received by:
------------------------------- ---------------------
SIGNATURE AUTHORIZED SIGNER
------------------------------- Date:
TITLE ----------------------------
Verified:
------------------------------- ------------------------
DATE AUTHORIZED SIGNER
Compliance Status: Yes No
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CORPORATE RESOLUTIONS TO BORROW
Borrower: Xxxxx.xxx Networks
I, the undersigned Secretary or Assistant Secretary of Xxxxx.xxx
Networks (the "Corporation"), H:EREBY CERTIFY that the Corporation is organized
and existing under and by virtue of the laws of the State of California.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true
and complete copies of the Articles of Incorporation, as amended and the
Restated Bylaws of the Corporation, each of which is in fall force and effect on
the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
Xxxxxxx XxXxxxxx CEO and President /s/Xxxxxxx X. XxXxxxxx
----------------------- ------------------------ ----------------------------
Xxxxx Pack Vice President /s/Xxxxx Pack
----------------------- ------------------------ ----------------------------
Xxxxxxx Xxxx CFO /s/Xxxxxxx Xxxx
----------------------- ------------------------ ----------------------------
----------------------- ------------------------ ----------------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Imperial Bank ("Bank"),
on such terms as may be agreed upon between the officers, employees, or agents
and Bank, such sum or sums of money as in their judgment should be borrowed,
without limitation, including such sums as are specified in that certain Loan
and Security Agreement dated as of April 9, 1998 (the "Loan Agreement").
EXECUTE LOAN AGREEMENT. To execute and deliver to Bank the Loan
Agreement, and also to execute and deliver to Bank one or more renewals,
extensions, modifications, refinancings, consolidations, or substitutions for
one or more of the notes, or any portion of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such
1.
39
proceeds to be credited to the account of the Corporation with Bank, or to cause
such other disposition of the proceeds derived therefrom as they may deem
advisable.
WARRANTS. To issue a warrant to purchase the Corporation's capital .
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on April 27, 1998 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/Xxxxx Pack
-------------------------------
2.
40
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
April 9, 1998 by and between IMPERIAL BANK ("Bank") and XXXXX.XXX NETWORKS
("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks and Patents
to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents and Trademarks listed on Schedules
A, B and C hereto), and including without limitation all proceeds thereof (such
as, by way of example but not by way of limitation, license royalties and
proceeds of infringement suits), the right to xxx for past, present and future
infringements, all rights corresponding thereto throughout the world and all
re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Bank as a matter of law or equity. Each
right, power and remedy of Bank provided for herein or in the Loan Agreement or
any of the Loan Documents, or now or hereafter existing at law or in equity
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Bank of any one or more
of the rights, powers or remedies provided for in this Intellectual Property
Security Agreement, the Loan Agreement or any of the other Loan Documents, or
now or hereafter existing at law or in equity, shall not preclude the
simultaneous or later exercise by any person, including Bank, of any or all
other rights, powers or remedies.
1.
41
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: XXXXX.XXX NETWORKS
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000 By: /s/Xxxxxxx X. XxXxxxxx
-------------------------------
Attn: Title: CEO and President
-------------------------- -------------------------------
BANK:
IMPERIAL BANK
Address of Bank:
000 Xxxxxxx Xxxxxxx By: /s/ IMPERIAL BANK
-------------------------------
Xxx Xxxx, XX 00000 Title:
-------------------------------
Attn: Corporate Banking Center
2.
42
EXHIBIT A
Copyrights
Registration/ Registration/
Application Application
Description Number Date
----------- ------ ----
1.
43
EXHIBIT B
Patents
Registration/ Registration/
Application Application
Description Number Date
----------- ------ ----
1.
44
EXHIBIT C
Trademarks
Registration/ Registration/
Application Application
Description Number Date
----------- ------ ----
1.
45
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Xxxxx.xxx Networks
Number of Shares: 24,671, subject to adjustment
Class of Stock: Series C Preferred, subject to adjustment
Initial Exercise Price: $3.04, subject to adjustment
Issue Date: April 9, 1998
Expiration Date: April 9, 2003
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $ 1.00 and for
other good and valuable consideration, IMPERIAL BANK ("Holder") is entitled to
purchase the number of fully paid and nonassessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth herein and as
adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth of this Warrant. If the aggregate
Nonformula Advances under the Loan and Security Agreement between the Company
and Holder dated as of the Issue Date (the "Loan Agreement") do not at any time
exceed $1,000,000, the number of Shares subject to this Warrant shall be 16,447.
If the aggregate Nonformula Advances under the Loan Agreement do not at any time
exceed $500,000, the number of Shares subject to this Warrant shall be 8,224. If
Borrower receives not less than $10,000,000 from the sale or issuance of its
equity securities not later than July 31, 1998 (an "Equity Event"), then this
Warrant shall be for the type of securities issued in the Equity Event, and the
Initial Exercise Price shall be the price per share at which such securities
were issued. If the Equity Event occurs after July 31, 1998 but not later than
September 30, 1998, then this Warrant shall be for the type of securities issued
in the Equity Event, and the Initial Exercise Price shall be the average of (a)
$3.04 and (b) the price per share at which such securities were issued. Holder
shall be entitled to purchase an additional 1,000 Shares per day under this
Warrant for each day after September 30, 1998 that any Nonformula Advance is
outstanding, provided the number of such additional Shares shall not exceed the
quotient derived by dividing ten percent of the outstanding Nonformula Advance
by the Warrant Price.
ARTICLE 1 EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
I to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.
46
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 No Rights as Shareholder. This Warrant does not entitle Holder to
any voting rights as a shareholder of the Company prior to the exercise hereof.
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of tile Company shall determine fair market value in its
reasonable good faith judgment.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
and its legal counsel or, in the case of mutilation, or surrender and
cancellation of this Warrant, the Company shall execute and deliver, in lieu of
this Warrant, a new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company in which the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2 Assumption of Warrant. If, upon the closing of any
Acquisition, the successor entity shall elect to assume the obligations of this
Warrant, and this Warrant shall be exercisable for the same securities, cash,
and property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly. If the successor entity does not assume the obligations
of this Warrant, this Warrant shall be deemed converted in full pursuant to
Section 1.2, effective immediately prior to the closing of such Acquisition.
2.
47
ARTICLE 2 ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation (the "Articles") upon the closing of a registered public offering
of the Company's common stock. The Company or its successor shall promptly issue
to Holder a new Warrant for such new securities or other property. The new
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The provisions
of this Section 2.2 shall similarly apply to successive reclassifications,
exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The number of shares of common
stock issuable upon conversion of the Shares, shall be subject to adjustment,
from time to time in accordance with the provisions of the Articles of
Incorporation in the form provided to Bank which apply to a "sale of Shares
below the Series Preferred Conversion Price."
2.5 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article 2 against impairment.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the
3.
48
nearest whole Share. If a fractional share interest arises upon any exercise or
conversion of the Warrant, the Company shall eliminate such fractional share
interest by paying Holder amount computed by multiplying the fractional interest
by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company shall promptly compute such adjustment, and furnish Holder
with a certificate of its Chief Financial Officer setting forth such adjustment
and the facts upon which such adjustment is based. The Company shall, upon
written request with reasonable notice, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3 REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares (assuming payment of the Warrant Price),
shall, upon issuance, be duly authorized, validly issued, fully paid and
nonassessable, and free of any liens and encumbrances except for restrictions on
transfer provided for herein or under applicable federal and state securities
laws. The issued and outstanding shares of the Company on the Issue Date are set
forth in the capitalization table attached hereto.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to effect any reclassification or recapitalization of common stock; or (c)
to merge or consolidate with or into any other corporation, or sell, or
otherwise convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; then, in connection with each such event, the Company shall
give Holder such notice as is required under the Amended and Restated Investor
Rights Agreement or, if such does not apply, (1) in respect of the matters
referred to in (b) and (c) above, at least 20 days prior written notice of the
date on which a record will be taken for such dividend or distribution rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any; and (2) in the case of the
matters referred to in (b) and (c) above at least 20 days prior written notice
of the date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event).
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder promptly after
mailing, copies of all notices or other written communications it would be
entitled to were it a shareholder.
3.4 Registration Under Securities Act of 1933, as amended. The Holder of
the Warrant shall become a party to the Amended and Restated Investor Rights
Agreement, and the common stock into which the Shares are convertible shall be
subject to the registration rights granted to the purchasers in the Equity Event
or, if this Warrant is for another Series of Preferred Stock, then the
registration rights held by the purchasers of such Preferred Stock.
4.
49
ARTICLE 4 REPRESENTATIONS AND COVENANTS OF HOLDER.
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of Holder, which by its acceptance
hereof the Holder (including any permitted transferee of Holder on behalf of
such transferee) hereby confirms:
4.1 Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of Holder's rights contained herein will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and the Holder has no present intention of selling or engaging
in any public distribution of the same except pursuant to a registration or
exemption.
4.2 Private Issue. Holder understands (i) that the Preferred Stock,
issuable upon exercise of the Holder's rights contained herein is not registered
under the 1933 Act or qualified under applicable state securities laws on the
ground that the issuance contemplated by this Warrant Agreement will be exempt
from the registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 4.
4.3 Financial Risk. Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the economic risks of its
investment.
4.4 Risk of No Registration. Holder understands that if the Company does
not register with the Securities and Exchange Commission pursuant to Section 12
of the 1933 Act, or file reports pursuant to Section 15(d) of the Securities
Exchange Act of 1934 (the "1934 Act"), or if a registration statement covering
the securities under the 1933 Act is not in effect when it desires to sell (i)
the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or
(ii) the Preferred Stock issuable upon exercise of the right to purchase, it may
be required to hold such securities for an indefinite period. The Holder also
understands that any sale of the rights of the Holder to purchase Preferred
Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may
be made only in accordance with the terms and conditions of that Rule.
4.5 Accredited Investor. Holder is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Act, as presently in effect.
ARTICLE 5 MISCELLANEOUS.
5.1 Term. This Warrant is exercisable, in whole or in part, at any time
and from time to time on or before the Expiration Date.
5.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED
5.
50
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
5.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
5.4 Transfer Procedure. Subject to the provisions of Sections 4.2 and
4.3, Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
5.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
5.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
6.
51
5.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
XXXXX.XXX NETWORKS
By: /s/Xxxxxxx X. XxXxxxxx
-------------------------------
Title: CFO and President
-------------------------------
7.
52
APPENDIX I
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _______ shares of the
Common/Series ___________ Preferred [strike one] Stock of
_________________________ pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full.
2. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is exercised with
respect to _________________ of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
3. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
-------------------------------
(Name)
-------------------------------
-------------------------------
(Address)
4. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
-------------------------------
(Signature)
-------------------------------
(Date)
1.
53
AGREEMENT TO PROVIDE INSURANCE
TO: IMPERIAL BANK Date: April 9, 1998
000 Xxxxxxx Xxxxxxx Borrower: Xxxxx.xxx Networks
Xxx Xxxx, Xxxxxxxxxx 00000
In consideration of a loan in the amount of $3.000,000, secured by all
tangible personal property including Inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in force
during the term of the loan.
We also agree to advise the below named agent to add Imperial Bank as
loss payee on the new or existing Insurance policy, and to furnish Bank at above
address with a copy of said policy/endorsements and any subsequent renewal
policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
(a) The amount of the loan, OR
(b) All existing encumbrances, whichever is greater,
But not in excess of the replacement value of the improvements on
the real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of
Imperial Bank, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent Telephone No.:
Agent's Address:
Signature of Obligor: /s/ XXXXXXX XXXX
-----------------------------
Signature of Obligor: /s/Xxxxxxx X. XxXxxxxx
-----------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date:______
Person Spoken to:__________________
Policy Number:_____________________
Effective Form:____________ To: ___
Verified By:_______________________
1.
54
IMPERIAL BANK
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Name(s): Date:
$ paid to you directly by Cashiers Check No.
$ credited to deposit account No. __________ when Advances
arc requested
$ paid to Silicon Valley Bank $
$ amounts paid to Bank for
Amounts paid to others on your behalf:
$4,000 to Imperial Bank for Loan Fee
$0 to Imperial Bank for Document Fee
$0 to Imperial Bank for accounts receivable audit
(estimate)
$ to Bank counsel fees and expenses
$ to
$ to
TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
__________________ Disburse from Loan Proceeds
__________________ Debit from Account
__________________ Payable with Borrower's check
Check one. Payments will be disbursed from loan proceeds unless directed
otherwise.)
/s/ XXXXXXX XXXX /s/Xxxxxxx X. XxXxxxxx
------------------------------- -------------------------------
Signature Signature
1.
55
IMPERIAL BANK
AUTOMATIC DEBIT AUTHORIZATION
California's Business-Banks
Member FDIC
To: Imperial Bank
Re: Loan #__________________________
You are hereby authorized and instructed to charge account No. ______________ in
the name of XXXXX.XXX NETWORKS for principal and interest payments due on above
referenced loan as set forth below and credit the loan referenced above.
[X] Debit each interest payment as it becomes due according to the terms of the
note and any renewals or amendments thereof.
[ ] Debit each principal payment is at becomes due according to the terms of the
note and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in
writing.
Borrower Signature Date 4/17/98
------------------------------- -------------------------
Xxxxxxx X. XxXxxxxx 4/18/98
1.
