EXHIBIT 10.23
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LOAN AND SECURITY AGREEMENT
LIQUID AUDIO, INC.
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TABLE OF CONTENTS
Page
1 ACCOUNTING AND OTHER TERMS............................................... 4
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2 LOAN AND TERMS OF PAYMENT................................................ 4
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2.1 Credit Extensions................................................. 4
2.2 Overadvances...................................................... 6
2.3 Interest Rate, Payments........................................... 6
2.4 Fees.............................................................. 6
3 CONDITIONS OF LOANS...................................................... 7
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3.1 Conditions Precedent to Initial Credit Extension.................. 7
3.2 Conditions Precedent to Initial Advance........................... 7
3.3 Conditions Precedent to all Credit Extensions..................... 7
4 CREATION OF SECURITY INTEREST............................................ 7
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4.1 Grant of Security Interest........................................ 7
5 REPRESENTATIONS AND WARRANTIES........................................... 7
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5.1 Due Organization and Authorization................................ 7
5.2 Collateral........................................................ 7
5.3 Litigation........................................................ 8
5.4 No Material Adverse Change in Financial Statements................ 8
5.5 Solvency.......................................................... 8
5.6 Regulatory Compliance............................................. 8
5.7 Subsidiaries...................................................... 8
5.8 Full Disclosure................................................... 8
6 AFFIRMATIVE COVENANTS.................................................... 9
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6.1 Government Compliance............................................. 9
6.2 Financial Statements, Reports, Certificates....................... 9
6.3 Inventory; Returns................................................ 9
6.4 Taxes............................................................. 9
6.5 Insurance......................................................... 10
6.6 Primary Accounts.................................................. 10
6.7 Financial Covenants............................................... 10
6.8 Further Assurances................................................ 10
7 NEGATIVE COVENANTS....................................................... 10
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7.1 Dispositions...................................................... 10
7.2 Changes in Business, Ownership, Management or Business Locations.. 10
7.3 Mergers or Acquisitions........................................... 10
7.4 Indebtedness...................................................... 11
7.5 Encumbrance....................................................... 11
7.6 Distributions; Investments........................................ 11
7.7 Transactions with Affiliates...................................... 11
7.8 Subordinated Debt................................................. 11
7.9 Compliance........................................................ 11
8 EVENTS OF DEFAULT........................................................ 11
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8.1 Payment Default................................................... 11
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8.2 Covenant Default......................................... 11
8.3 Material Adverse Change.................................. 12
8.4 Attachment............................................... 12
8.5 Insolvency............................................... 12
8.6 Other Agreements......................................... 12
8.7 Judgments................................................ 12
8.8 Misrepresentations....................................... 12
9 BANK'S RIGHTS AND REMEDIES....................................... 12
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9.1 Rights and Remedies...................................... 12
9.2 Power of Attorney........................................ 13
9.3 Accounts Collection...................................... 13
9.4 Bank Expenses............................................ 13
9.5 Bank's Liability for Collateral.......................... 14
9.6 Remedies Cumulative...................................... 14
9.7 Demand Waiver............................................ 14
10 NOTICES.......................................................... 14
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11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER....................... 14
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12 GENERAL PROVISIONS............................................... 14
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12.1 Successors and Assigns.................................. 14
12.2 Indemnification......................................... 15
12.3 Time of Essence......................................... 15
12.4 Severability of Provision............................... 15
12.5 Amendments in Writing, Integration...................... 15
12.6 Counterparts............................................ 15
12.7 Survival................................................ 15
12.8 Confidentiality......................................... 15
12.9 Effect of Amendment and Restatement..................... 15
12.10 Attorneys' Fees, Costs and Expenses.................... 16
13 DEFINITIONS...................................................... 16
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13.1 Definitions............................................. 16
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THIS LOAN AND SECURITY AGREEMENT dated November 16, 1998 between SILICON
VALLEY BANK ("Bank"), whose address is ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and LIQUID AUDIO, INC ("Borrower"), whose address is ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
1 ACCOUNTING AND OTHER TERMS
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Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation" in this
or any Loan Document. This Agreement shall be construed to impart upon Bank a
duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
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2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit Extensions
and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding (i) the lesser of (A) the
Committed Revolving Line or (B) the Borrowing Base, whichever is less, minus
(ii) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), and minus (iii) the Foreign Exchange Reserve
Amounts borrowed under this Section may be repaid and reborrowed during the term
of this Agreement
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3 00 p m Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity Date,
when all Advances and other amounts due under this Agreement are immediately
payable.
2.1.2 LETTERS OF CREDIT.
Bank will issue or have issued Letters of Credit for Borrower's account not
exceeding (i) the lesser of the Committed Revolving Line or the Borrowing Base
minus (ii) the outstanding principal balance of the Advances, minus the Foreign
Exchange Reserve; however, the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed $500,000. Each Letter of Credit will have an expiry date
of no later than 180 days after the Revolving Maturity Date, but Borrower's
reimbursement obligation will be secured by cash on terms acceptable to Bank at
any time after the Revolving Maturity Date if the term of this Agreement is not
extended by Bank.
2.1.3 FOREIGN EXCHANGE CONTRACT; FOREIGN EXCHANGE SETTLEMENTS.
Borrower may enter foreign exchange contracts (the "Exchange Contracts")
not exceeding an aggregate amount of $500,000 (the "Contract Limit"), under
which Bank will sell to or purchase from Borrower foreign currency on a spot or
future basis. Borrower may not request any Exchange Contracts if
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* Certain information in this Exhibit has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
it is out of compliance with any provision of this Agreement. Exchange Contracts
must provide for delivery of settlement on or before the Revolving Maturity
Date. The amount available under the Committed Revolving Line is reduced by the
following (the "Foreign Exchange Reserve") on any given day (the "Determination
Date"): (i) on all outstanding Exchange Contracts on which delivery is to be
effected or settlement allowed more than two business days after the
Determination Date, 10% of the gross amount of the Exchange Contracts; plus (ii)
on all outstanding Exchange Contracts on which delivery is to be effected or
settlement allowed within two business days after the Determination Date. 100%
of the gross amount of the Exchange Contracts.
Bank may terminate the Exchange Contracts if (a) an Event of Default occurs
or (b) there is not sufficient availability under the Committed Revolving Line
and Borrower does not have available funds in its deposit account for the
Foreign Exchange Reserve. If Bank terminates the Exchange Contracts Borrower
will reimburse Bank for all fees, costs and expenses in connection with the
Exchange Contracts
Borrower may not permit the total of all Exchange Contracts on which
delivery is to be effected and settlement allowed in any two business day period
to be more than $500,000 (the "Settlement Limit") nor may Borrower permit the
total of all Exchange Contracts outstanding at any one time, to exceed the
Contract Limit. However, the amount which may be settled in any 2 business day
period may be increased above the Settlement Limit up to, but not above the
Contract Limit if:
(i) there is sufficient availability under the Committed Revolving Line in
the amount of the Foreign Exchange Reserve for each Determination Date,
provided that Bank in advance shall reserve the full amount of the Foreign
Exchange Reserve against the Committed Revolving Line, or
(ii) there is insufficient availability under the Committed Revolving Line
for settlements within any 2 business day period, but Bank: (A) verifies
good funds overseas before crediting Borrower's deposit account (if
Borrower sells foreign currency), or (B) debits Borrower's deposit account
before delivering foreign currency overseas (if Borrower purchases foreign
currency)
If Borrower purchases foreign currency. Borrower in advance must instruct
Bank either to treat the settlement as an advance under the Committed Revolving
Line, or to debit Borrower's account for the amount settled.
Borrower will execute all Bank's standard applications and agreements in
connection with the Exchange Contracts and pay all Bank's standard fees and
charges
Borrower will indemnify Bank and hold it harmless from all claims,
liabilities, demands, obligations, actions, costs and expenses (including
reasonable attorneys' fees) which it incurs arising out of or in any way
relating to any of the Exchange Contracts or any contemplated transactions.
2.1.4 CASH MANAGEMENT SERVICES FACILITY.
Borrower may use up to $300,000 for Bank's Cash Management Services,
which services will include credit card services identified in various cash
management services agreements related to such services (the "Cash Management
Services") The Cash Management Services Facility terminates on the Revolving
Maturity Date, when all amounts due under the Cash Management Services Facility
are immediately due and payable.
2.1.5 EQUIPMENT ADVANCES.
(a) Through November 16, 1999 (the "Equipment Availability End Date"),
Bank will make advances ("Equipment Advance" and, collectively, "Equipment
Advances") not exceeding the Committed Equipment Line. The Equipment Advances
may only be used to finance computer and office Equipment purchased since June
1, 1998 and may not exceed 100% of the equipment invoice excluding taxes.
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shipping, warranty charges, freight discounts and installation expense Software,
licenses leasehold improvements and other soft costs may constitute up to 40% of
the aggregate Equipment Advances
(b) Interest accrues from the date of each Equipment Advance at the rate in
Section 2.3(a) and is payable monthly until the Equipment Availability End Date
occurs. At Borrowers option at any time prior to the Equipment Availability End
Date the outstanding Equipment Advances equal $200.000 or more, the outstanding
Equipment Advances may be termed out and be payable in 36 even monthly
installments of principal plus interest beginning the 16th day of the month
following such term-out and all subsequent payments of principal plus interest
are due on the same day of each month thereafter (each an "Early Term-Out"). The
final payment for the Early Term-Out, due the 16th day of the 36th month
following the Early Term-Out, will be for all outstanding principal plus accrued
interest Equipment Advances outstanding on the Equipment Availability End Date
are payable in 36 equal monthly installments of principal, plus accrued
interest, beginning on the 16th day of each month following the Equipment
Availability End Date and ending on November 16, 2002 (the "Equipment Maturity
Date") Equipment Advances when repaid may not be reborrowed.
(c) To obtain an Equipment Advance, Borrower must notify Bank (the notice
is irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1 Business Day
before the day on which the Equipment Advance is to be made. The notice in the
form of Exhibit B (Payment/Advance Form) must be signed by a Responsible Officer
or designee and include a copy of the invoice for the Equipment being financed
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2 1.1, 2.1.2 and 2.1.3 exceed the
lesser of either (i) the Committed Revolving Line or (ii) the Borrowing Base,
Borrower must immediately pay Bank the excess In addition, if Borrower's
Obligations under Sections 2.1.2 and 2.1.3 exceed $500,000 at any one time,
Borrower will immediately pay Bank the excess.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate (i) Advances accrue interest on the outstanding principal
balance at a per annum rate equal to the Prime Rate; and (ii) Equipment Advances
accrue interest on the outstanding principal balance at a per annum rate of 0.25
percentage points above the Prime Rate After an Event of Default, Obligations
accrue interest at 5 percent above the rate effective immediately before the
Event of Default. The interest rate increases or decreases when the Prime Rate
changes. Interest is computed on a 360 day year for the actual number of days
elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable on
the 16th of each month Interest due on the Equipment Advances is payable on the
16th of each month Bank may debit any of Borrower's deposit accounts including
Account Number _____________ for principal and interest payments or any amounts
Borrower owes Bank. Bank will notify Borrower when it debits Borrower's
accounts. These debits are not a set-off Payments received after 12:00 noon
Pacific time are considered received at the opening of business on the next
Business Day When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue
2.4 FEES.
BORROWER WILL PAY:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of $2,500 for
the Committed Revolving Line and the Committed Equipment Line due on the Closing
Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses) incurred through and after the date of this Agreement, are payable
when due.
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shipping, warranty charges, freight discounts and installation expense.
Software, licenses, leasehold improvements and other soft costs may constitute
up to 40% of the aggregate Equipment Advances.
(b) Interest accrues from the date of each Equipment Advance at the rate in
Section 2.3(a) and is payable monthly until the Equipment Availability End Date
occurs. At Borrowers option, at any time prior to the Equipment Availability End
Date the outstanding Equipment Advances equal $200,000 or more, the outstanding
Equipment Advances may be termed out and be payable in 36 even monthly
installments of principal plus interest beginning the 16th day of the month
following such term-out and all subsequent payments of principal plus interest
are due on the same day of each month thereafter (each an "Early Term-Out"). The
final payment for the Early Term-Out, due the 16th day of the 36th month
following the Early Term-Out, will be for all outstanding principal plus accrued
interest. Equipment Advances outstanding on the Equipment Availability End Date
are payable in 36 equal monthly installments of principal, plus accrued
interest, beginning on the 16th day of each month following the Equipment
Availability End Date and ending on November 16, 2002 (the "Equipment Maturity
Date") Equipment Advances when repaid may not be reborrowed.
(c) To obtain an Equipment Advance. Borrower must notify Bank (the notice
is irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1 Business Day
before the day on which the Equipment Advance is to be made. The notice in the
form of Exhibit B (Payment/Advance Form) must be signed by a Responsible Officer
or designee and include a copy of the invoice for the Equipment being financed.
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1, 2.1.2 and 2.1.3 exceed the
lesser of either (i) the Committed Revolving Line or (ii) the Borrowing Base,
Borrower must immediately pay Bank the excess. In addition, if Borrower's
Obligations under Sections 2.1.2 and 2.1.3 exceed $500,000 at any one time,
Borrower will immediately pay Bank the excess.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. (i) Advances accrue interest on the outstanding
principal balance at a per annum rate equal to the Prime Rate; and (ii)
Equipment Advances accrue interest on the outstanding principal balance at a per
annum rate of 0.25 percentage points above the Prime Rate. After an Event of
Default, Obligations accrue interest at 5 percent above the rate effective
immediately before the Event of Default. The interest rate increases or
decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable on
the 16th of each month. Interest due on the Equipment Advances is payable on the
16th of each month. Bank may debit any of Borrower's deposit accounts including
Account Number _______________ for principal and interest payments or any
amounts Borrower owes Bank. Bank will notify Borrower when it debits Borrower's
accounts. These debits are not a set-off. Payments received after 12:00 noon
Pacific time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue
2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of $2,500 for
the Committed Revolving Line and the Committed Equipment Line due on the Closing
Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses) incurred through and after the date of this Agreement, are payable
when due.
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3 CONDITIONS OF LOANS
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3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO INITIAL ADVANCE.
Bank shall conduct a satisfactory Collateral audit.
3.3 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially true
on the date of the Payment/Advance Form and on the effective date of each Credit
Extension and no Event of Default may have occurred and be continuing, or result
from the Credit Extension. Each Credit Extension is Borrower's representation
and warranty on that date that the representations and warranties of Section 5
remain true
4 CREATION OF SECURITY INTEREST
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4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5 REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor
Borrower has no notice of any actual or imminent insolvency Proceeding of any
account debtor whose
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3 CONDITIONS OF LOANS
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3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO INITIAL ADVANCE.
Bank shall conduct a satisfactory Collateral audit.
3.3 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially true
on the date of the Payment/Advance Form and on the effective date of each Credit
Extension and no Event of Default may have occurred and be continuing, or result
from the Credit Extension. Each Credit Extension is Borrower's representation
and warranty on that date that the representations and warranties of Section 5
remain true
4 CREATION OF SECURITY INTEREST
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4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5 REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor
Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose
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accounts are an Eligible Account in any Borrowing Base Certificate. All
Inventory is in all material respects of good and marketable quality, free from
material defects.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
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6. AFFIRMATIVE COVENANTS
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Borrower will do all of the following
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrower's business or operations. Borrower will comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank; (ii) as soon as available, but no later than 120 days after the last
day of Borrower's fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting firm
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more. and (iv) budgets, sales
projections, operating plans or other financial information Bank requests.
(b) Within 30 days after the last day of each month, Borrower will deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
of Exhibit C, with aged listings of accounts receivable and accounts payable
prior to an Advance or at such times as outstanding Advances exist, otherwise,
within 30 days after the last day of each month, Borrower will deliver to Bank a
listing of accounts receivable and accounts payable.
(c) Within 30 days after the last day of each month, Borrower will deliver
to Bank with the monthly financial statements a Compliance Certificate signed by
a Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Collateral at Borrower's
expense, but the audits will be conducted no more often than every year unless
an Event of Default has occurred and is continuing at such times as outstanding
Advances exist. In the event Borrower does not request Advances, no Collateral
audit shall be required.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns. recoveries,
disputes and claims, that involve more than $50,000
6.4 TAXES
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
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6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and in
amounts as Bank requests. Insurance policies will be in a form, with companies,
and in amounts that are satisfactory to Bank. All property policies will have a
lender's loss payable endorsement showing Bank as an additional loss payee and
all liability policies will show the Bank as an additional insured and provide
that the insurer must give Bank at least 20 days notice before canceling its
policy. At Bank's request. Borrower will deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy will at
Bank's option, be payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts with
Bank
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month:
(i) ADJUSTED QUICK RATIO. A ratio of Quick Assets to Current
Liabilities minus Deferred Maintenance Revenue of at least 2.00 to 1.00.
(ii) TANGIBLE NET WORTH. A Tangible Net Worth of at least $5,750,000.
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
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Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower or have a material change
in its ownership of greater than 25% Borrower will not, without at least 30 days
prior written notice, relocate its chief executive office or add any new offices
or business locations.
7.3 MERGERS OR ACQUISITIONS.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except (i) where no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and Tangible Net Worth will not decrease by more than 25%; or (ii)
merge or consolidate a Subsidiary into another Subsidiary or into Borrower
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7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments, or permit any of its Subsidiaries
to do so. Pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
8. EVENTS OF DEFAULT
-----------------
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the
11
default cannot be cured within 10 days or cannot be cured after Borrower's
attempts within 10 day period and the default may be cured within a reasonable
time, then Borrower has an additional period (of not more than 30 days) to
attempt to cure the default. During the additional time, the failure to cure the
default is not an Event of Default (but no Credit Extensions will be made during
the cure period),
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority of
the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment. that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change.
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
12
(a) Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower,
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues. Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or ▇▇▇▇ of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral
13
(a) Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank;
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower.
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to. (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or ▇▇▇▇ of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral
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No payments by Bank are deemed an agreement to make similar payments in the
future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
-------
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
------------------------------------------
California law governs the Loan Documents without regard to principles of
conflicts of law Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa ▇▇▇▇▇ County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
------------------
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights
under it without Bank's prior written consent which may be granted or withheld
in Bank's discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank's obligations, rights and benefits under this
Agreement.
14
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSANCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties separate counterparts, each of which, when executed and
delivered, are an original, and all to together, constitute one agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any Interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 EFFECT OF AMENDMENT AND RESTATEMENT.
This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall
15
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred
or paid by Bank from, following, or consequential to transactions between Bank
and Borrower including reasonable attorneys fees and expenses), except for
losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 EFFECT OF AMENDMENT AND RESTATEMENT.
This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall
15
continue to be outstanding under this Agreement. All security interests granted
under the Original Agreement are hereby confirmed and ratified and shall
continue to secure all Obligations under this Agreement.
12.10 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.
13 DEFINITIONS
-----------
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" is a loan advance (or advances) under the Committed Revolving
Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"BORROWING BASE" is 80% of Eligible Accounts as determined by Bank from
Borrower's most recent Borrowing Base Certificate.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed
"CASH MANAGEMENT SERVICES FACILITY" is defined in Section 2.1.4.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
---------
"COMMITTED EQUIPMENT LINE" is a Credit Extension of up to $3,000,000.
"COMMITTED REVOLVING LINE" is an Advance of up to $1,000,000.
16
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not or that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable, (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CREDIT EXTENSION" is each Advance, Equipment Advance, Letter of Credit.
Exchange Contract or any other extension of credit by Bank for Borrower's
benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"DEFERRED MAINTENANCE REVENUE" is all amounts received in advance of
performance under maintenance contracts and not yet recognized as revenue.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5,
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
---
agrees otherwise in writing, Eligible Accounts will not include
(a) Accounts that the account debtor has not paid within 90 days of invoice
date,
(b) Accounts for an account debtor, 50% or more of whose Accounts have not
been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that
exceed that percentage, unless the Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal place
of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to the
amount owed (sometimes called "contra" accounts, accounts payable, customer
deposits or credit accounts),
(h) Accounts for demonstration or promotional equipment, or in which goods
are consigned, sales guaranteed, sale or return, sale on approval, ▇▇▇▇ and
hold, or other terms if account debtor's payment may be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate, officer,
employee, or agent,
17
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business
(k) Accounts for which Bank reasonably determines collection to be doubtful
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements furniture fixtures, vehicles, tools, parts and attachments in which
Borrower has any interest
"EQUIPMENT ADVANCE" is defined in Section 2.1.5.
"EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.5.
"EQUIPMENT MATURITY DATE" is defined in Section 2.1.5.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations
"EXCHANGE CONTRACT" is defined in Section 2.1.3.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is 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 later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"LETTER OF CREDIT" is defined in Section 2.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
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"OBLIGATIONS" are debts, principal, interest. Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"ORIGINAL AGREEMENT" has the meaning set forth in recital paragraph A
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other Loan
Document
(b) Indebtedness existing on the Closing Date and shown on the Schedule,
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business, and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
and
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor's Corporation
or ▇▇▇▇▇'▇ Investors Service, Inc, and (iii) Bank's certificates of deposit
issued maturing no more than 1 year after issue
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or arising
under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
---
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
--
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the ordinary
course of Borrower's business and any interest or title of a lessor, licensor or
under any lease or license, if the leases, subleases, licenses and sublicenses
--
permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate
19
"QUICK ASSETS" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents plus accounts receivable.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is November 16, 1999
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
-----
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
---
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
BORROWER:
Liquid Audio, Inc.
By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------
Title: CFO
--------------------------
BANK
SILICON VALLEY BANK
By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------
Title: V.P.
---------------------------
20
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following
All goods and equipment now owned or hereafter acquired, including, without
limitation all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
to any of the foregoing, wherever located.
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above.
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind.
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of 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:
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing.
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired, all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired, all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired, all claims
for damages by way of any past, present and future infringement of any of the
foregoing, and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M. P.S.T.
TO CENTRAL CLIENT SERVICE DIVISION DATE: _______________________
FAX# (▇▇▇) ▇▇▇-▇▇▇▇ TIME: _______________________
--------------------------------------------------------------------------------
FROM: Liquid Audio, Inc.
--------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY: __________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: __________________________________________________________
PHONE NUMBER: __________________________________________________________________
FROM ACCOUNT #________________ TO ACCOUNT #____________________________________
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
-------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $_______________________________________
PRINCIPAL PAYMENT (ONLY) $_______________________________________
INTEREST PAYMENT (ONLY) $_______________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_______________________________________
OTHER INSTRUCTIONS: ____________________________________________________________
--------------------------------------------------------------------------------
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate, but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that 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 #
______________________________________ ____________________________
Received By (Bank) Phone #
___________________________________
Authorized Signature (Bank)
--------------------------------------------------------------------------------
EXHIBIT C
BORROWING BASE CERTIFICATE
--------------------------------------------------------------------------------
Borrower: Liquid Audio, Inc. Lender Silicon Valley Bank
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Commitment Amount $1,000,000
--------------------------------------------------------------------------------
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 50% over 90 day accounts $________
6. Credit balances $________
7. Concentration Limits $________
8. Foreign Accounts $________
9. Governmental Accounts $________
10. Contra Accounts $________
11. Promotion or Demo Accounts $________
12. Intercompany/Employee Accounts $________
13. Other (please explain on reverse) $________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $________
15. Eligible Accounts (3 minus 14) $________
16. LOAN VALUE OF ACCOUNTS (80% of #15) $________
BALANCES
7. Maximum Loan Amount $________
18. Total Funds Available [Lesser of #17 or #16] $________
19. Present balance owing on Line of Credit $________
20. Outstanding under Sublimits (LC or FX) $________
21. RESERVE POSITION (#18 minus #19 and #20) $________
The undersigned represents and warrants that this is true, complete and correct
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS
-----------------------
BANK USE ONLY
-------------
Rec'd By __________
Auth. Signer
Liquid Audio, Inc. Date __________
Verified:__________
By: _______________________ Auth. Signer
Authorized Signer
Date:__________
-----------------------
EXHIBIT C
BORROWING BASE CERTIFICATE
--------------------------------------------------------------------------------
Borrower: Liquid Audio, Inc Lender: Silicon Valley Bank
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Commitment Amount: $1,000,000
--------------------------------------------------------------------------------
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 50% over 90 day accounts $________
6 Credit balances $________
7 Concentration Limits $________
8 Foreign Accounts $________
9 Governmental Accounts $________
10 Contra Accounts $________
11 Promotion or Demo Accounts $________
12 Intercompany/Employee Accounts $________
13 Other (please explain on reverse) $________
14 TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_____
15 Eligible Accounts (#3 minus #14) $_____
16 LOAN VALUE OF ACCOUNTS (80% of #15) $_____
BALANCES
17 Maximum Loan Amount $________
18 Total Funds Available [Lesser of # 17 or #16] $________
19 Present balance owing on Line of Credit $________
20 Outstanding under Sublimits (LC or FX) $_____
21 RESERVE POSITION (#18 minus #19 and #20) $_____
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS
------------------------
BANK USE ONLY
--------------
Rec'd By:_______
Auth. Signer
Liquid Audio, Inc. Date:________
Verified:____________
By _______________________________ Auth. Signer
Authorized Signer Date:________
__________
------------------------
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FROM: LIQUID AUDIO, INC.
The undersigned authorized officer of Liquid Audio, Inc. ("Borrower")
certifies that under 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 in the Agreement are
true and correct in all material respects on this date. Attached are the
required documents supporting the certification. The Officer certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) consistently applied from one period to the next except as explained in
an accompanying letter or footnotes. The Officer acknowledges that no borrowings
may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------- -------- --------
Monthly financial statements + CC Monthly within 30 days Yes No
Annual (Audited) FYE within 120 days Yes No
A/R & A/P Agings Monthly within 30 days Yes No
Borrowing Base Certificate* Monthly within 30 days Yes No
*not required when no outstanding Advances exist
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Adjusted Quick Ratio** 2.00:1.00 _____1.00 Yes No
Minimum Tangible Net Worth $5,750,000 $________ Yes No
**defined as, cash and cash equivalents plus accounts receivable divided by
current liabilities less deferred revenues.
--------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached BANK USE ONLY
Received by:__________________
Sincerely, AUTHORIZED SIGNER
Liquid Audio, Inc. Date:_________________________
Verified:_____________________
AUTHORIZED SIGNER
____________________________________
SIGNATURE Date:_________________________
____________________________________ Compliance Status Yes No
TITLE ------------------------------
___________________________________
DATE
CORPORATE BORROWING RESOLUTION
BORROWER: LIQUID AUDIO, INC. BANK: SILICON VALLEY BANK
810 ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF LIQUID AUDIO, INC.
("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly organized and
existing under and by virtue of the laws of the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of Borrower whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
▇▇▇▇ ▇▇▇▇▇▇▇ CFO /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------- --------------------- -------------------------
---------------- --------------------- -------------------------
---------------- --------------------- -------------------------
---------------- --------------------- -------------------------
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment should be
borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan documents
of Borrower, on Bank's forms, at such rates of interest and on such terms
as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of Borrower to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the loan documents, or
any portion of the loan documents
GRANT SECURITY. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations
to Bank
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 Borrower or in which Borrower may have an interest, and
either to receive cash for the same or to cause such proceeds to be
credited to the account of Borrower with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as, in
the judgment of the officer or officers herein authorized.
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock, for
such class, series and number, and on such terms, as an officer of Borrower
shall deem appropriate.
FURTHER ACTS. In the cases 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, including agreements waiving the right to a trial by jury, 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 Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Borrower and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Borrower; and that
they 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 November 16, 1998 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ [SIGNATURE ILLEGIBLE]
----------------------------------------
* Secretary or Assistant Secretary
X ________________________________________
*NOTE. In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
2
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of November 16, 1998 by and
between Liquid Audio Inc ("Borrower") and Silicon Valley Bank ("Bank").
In connection with, among other documents, the Loan and Security Agreement (the
"Loan Documents") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows
1. Borrower shall not sell, transfer, assign, mortgage, pledge, lease,
grant a security interest in, or encumber any of Borrower's
intellectual property, including, without limitation the following:
a. 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;
b. All mask works or similar rights available for the protection of
semiconductor chips, now owned or hereafter acquired;
c. 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;
d. Any and all design rights which may be available to Borrower now
or hereafter existing, created, acquired or held;
e. All patents, patent applications and like protections including,
without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the
same, including without limitation the patents and patent
applications.
f. 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, including
without limitation,
g. Any and all claims for damages by way of past, present and future
infringements of any of the rights included above, with the
right, but not the obligation, to ▇▇▇ for and collect such
damages for said use or infringement of the intellectual property
rights identified above;
h. All licenses or other rights to use any of the Copyrights,
Patents, Trademarks or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such
license or rights; and
i. All amendments, extensions, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
j. 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;
2. It shall be an event of default under the Loan Documents between
Borrower and Bank, there is a breach of any term of this Negative
Pledge Agreement
3. Capitalized terms used but not otherwise defined herein shall
have the same meaning as in the Loan Documents.
BORROWER:
Liquid Audio, Inc
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
Title: CFO
----------------------------
BANK:
SILICON VALLEY BANK
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇
----------------------------
Title V.P.
----------------------------
2
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: Liquid Audio, Inc.
LOAN OFFICER: ▇▇▇ ▇▇▇▇▇▇▇
DATE: November 16, 1998
Revolving Loan Fee $2,500.00
Credit Report 35.00
UCC Search Fee 60.00
UCC Filing Fee 20.00
Documentation Fee 750.00
TOTAL FEE DUE $3,365.00
=========
Please indicate the method of payment:
(x) A check for the total amount is attached.
( ) Debit DDA # ______________ for the total amount.
( ) Loan proceeds
Borrower:
By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------------
(Authorized Signer)
/s/ [SIGNATURE ILLEGIBLE]
-------------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature
This STATEMENT is presented for filing pursuant to the California
Uniform Commercial Code
------------------------------------------------------------------------------------------------------------------------------------
1. FILE NO OF ORIG FINANCING STATEMENT 1A. DATE OF FILING OR ORIG FINANCING 1B. DATE OF ORIG FINANCING 1C. PLACE ??? ?????
STATEMENT STATEMENT
▇▇▇▇▇▇▇▇▇▇ 12/3/95 CALIFORNIA
------------------------------------------------------------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A ?? ??? ??? ???
Liquid Audio, Inc.
------------------------------------------------------------------------------------------------------------------------------------
2B. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇. ▇▇▇▇, ▇▇▇▇▇ ▇▇. ▇▇▇ Code
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
------------------------------------------------------------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) ( LAST NAME FIRST) 3A. ??? ???? ???? ?
------------------------------------------------------------------------------------------------------------------------------------
3B. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇. ▇▇▇▇, ▇▇▇▇▇ ▇▇. ▇▇▇ Code
------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY 4A. ???? ???? ????
NAME SILICON VALLEY BANK
MAILING ADDRESS ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ZIP CODE 95054
------------------------------------------------------------------------------------------------------------------------------------
5. ASIGNEE OF SECURED PARTY (IF ANY)
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
------------------------------------------------------------------------------------------------------------------------------------
6. A [_] CONTINUATION- The original Financing Statement between the foregoing Debtor and Secured Party bearing the file number and
date shown above is continued. If collateral is crops or timber, check here [_] and insert description of real property on
which growing or to be grown in item 7 below.
-------------------------------------------------------------------------------------------------------------------------------
B [_] RELEASE- From the collateral described in the Financing Statement bearing the file number shown above, the Secured Party
releases the collateral described in Item 7 below.
-------------------------------------------------------------------------------------------------------------------------------
C [_] ASSIGNMENT- The Secured Party certifies that the Secured Party has assigned to the Assignee above named, the Secured
Party's rights under the Financing Statement bearing the file number shown above in the collateral described in Item 7
below.
-------------------------------------------------------------------------------------------------------------------------------
D [_] TERMINATION- The Secured Party certifies that the Secured Party no longer claims a security interest under Financing
Statement bearing the file number shown above.
-------------------------------------------------------------------------------------------------------------------------------
E [x] AMENDMENT- The Financing Statement bearing the file number shown above is amended as set forth in Item 7 below.
(Signature of Debtor required on all amendments.)
-------------------------------------------------------------------------------------------------------------------------------
F [_] OTHER
------------------------------------------------------------------------------------------------------------------------------------
7. Replacing exist Collateral description with Exhibit "A" attached hereto and incorporated herein
------------------------------------------------------------------------------------------------------------------------------------
8. trans 3945 C 9. This Space Use of filing Officer
Liquid Audio, Inc. (DATE) ___________________ 19___ O (Date, Time, Filing Officer)
D
E
-------
____________________________________________________________________________________ 1
By /s/ [SIGNATURE ILLEGIBLE] CFO 2
----------------------------------------------------------------------------
SIGNATURES(S) OF DEBTORS(S) 113/DXS (TITLE)
SILICON VALLEY BANK 3
_____________________________________________________________________________________
By /s/ ▇▇▇ ▇▇▇▇▇▇▇ 4
-----------------------------------------------------------------------------
SIGNATURES(S) OF SECURED PARTY(IES) (TITLE)
------------------------------------------------------------------------------------- 5
10. RETURN COPY TO
NAME Data File Services, Inc. 6
▇▇▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇ ▇
▇▇▇▇▇ ▇▇ 8
91408-2750
(1) FILING OFFICER COPY 9
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of 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;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.