EXHIBIT 10.24
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
Borrower: Zhone Technologies, Inc.
Address: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Date: December 30, 2002
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK ("Silicon"), whose address is ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and the borrower(s) named above (jointly and severally,
the "Borrower"), whose chief executive office is located at the above address
("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall
for all purposes be deemed to be a part of this Agreement, and the same is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 Loans. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its good faith business judgment, up to the amounts
(the "Credit Limit") shown on the Schedule, provided no Default or Event of
Default has occurred and is continuing, and, with respect to the Revolving
Loans, subject to deduction of Reserves for accrued interest and such other
Reserves as Silicon deems proper from time to time in its good faith business
judgment.
1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon.
1.3 Overadvances. If at any time or for any reason the total of all
outstanding Loans and all other monetary Obligations under or in connection with
this Agreement exceeds the Credit Limit (an "Overadvance"), Borrower shall pay
the amount of the excess to Silicon, within one Business Day following notice
thereof from Silicon to Borrower. Without limiting Borrower's obligation to
repay to Silicon the amount of any Overadvance, Borrower agrees to pay Silicon
interest on the outstanding amount of any Overadvance, on demand, at the Default
Rate.
1.4 Fees. Borrower shall pay Silicon the fees shown on the Schedule, which
are in addition to all interest and other sums payable to Silicon and are not
refundable.
1.5 Loan Requests. To obtain a Loan, Borrower shall make a request to
Silicon by facsimile or telephone. Loan requests received after 12:00 Noon will
not be considered by Silicon until the next Business Day. Silicon may rely on
any telephone request for a Loan given by a person whom Silicon believes is an
authorized representative of Borrower, and Borrower will indemnify Silicon for
any loss Silicon suffers as a result of that reliance.
1.6 Letters of Credit. At the request of Borrower, Silicon may, in its
good faith business judgment, issue or arrange for the issuance of letters of
credit for the account of Borrower, in each case in form and substance
satisfactory to Silicon in its sole discretion (collectively, "Letters of
Credit"). The aggregate face amount of all Letters of Credit from time to time
outstanding shall not exceed the amount shown on the Schedule (the "Letter of
Credit Sublimit"), and shall be reserved against Revolving Loans which would
otherwise be available hereunder, and in the event at any time there are
insufficient Revolving Loans available to Borrower for such reserve, Borrower
shall deposit and maintain with Silicon cash collateral in an amount at all
times equal to such deficiency, which shall be held as Collateral for all
purposes of this Agreement. Borrower shall pay all bank charges (including
charges of Silicon) for the issuance of Letters of Credit, together with such
additional customary fee
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
as Silicon's letter of credit department shall charge in connection with the
issuance of the Letters of Credit. Any payment by Silicon under or in connection
with a Letter of Credit shall constitute a Revolving Loan hereunder on the date
such payment is made. Each Letter of Credit shall have an expiry date not more
than one hundred and eighty days days after to the Maturity Date, but Borrower's
obligation to reimburse Silicon for any sums due on or in connection with the
Letters of Credit outstanding after the Maturity Date will be secured by cash on
terms acceptable to Silicon at all times after the Maturity Date. Borrower
hereby agrees to indemnify and hold Silicon harmless from any loss, cost,
expense, or liability, including payments made by Silicon, expenses, and
reasonable attorneys' fees incurred by Silicon arising out of or in connection
with any Letters of Credit other than those arising from Silicon's gross
negligence or wilful misconduct. Borrower agrees to be bound by the regulations
and interpretations of the issuer of any Letters of Credit guarantied by Silicon
and opened for Borrower's account or by Silicon's interpretations of any Letter
of Credit issued by Silicon for Borrower's account, and Borrower understands and
agrees that Silicon shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower's instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that Letters of Credit may require
Silicon to indemnify the issuing bank for certain costs or liabilities arising
out of claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify and hold Silicon harmless with respect to any loss, cost, expense, or
liability incurred by Silicon under any Letter of Credit as a result of
Silicon's indemnification of any such issuing bank. The provisions of this Loan
Agreement, as it pertains to Letters of Credit, and any other Loan Documents
relating to Letters of Credit are cumulative.
2. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Silicon a security interest in all of the following
(collectively, the "Collateral"): all right, title and interest of Borrower in
and to all of the following, whether now owned or hereafter arising or acquired
and wherever located: all Accounts; all Inventory; all Equipment; all Deposit
Accounts; all General Intangibles (including without limitation all Intellectual
Property); all Investment Property; all Other Property; and any and all claims,
rights and interests in any of the above, and all guaranties and security for
any of the above, and all substitutions and replacements for, additions,
accessions, attachments, accessories, and improvements to, and proceeds
(including proceeds of any insurance policies, proceeds of proceeds and claims
against third parties) of, any and all of the above, and all Borrower's books
relating to any and all of the above.
Notwithstanding the foregoing, the security interest granted herein does
not extend to, and the term "Collateral" does not include, the following: (A)
more than 65% of the presently existing and hereafter arising issued and
outstanding shares of capital stock owned by Borrower of any foreign subsidiary
which shares entitle the holder thereof to vote for directors or any other
matter; and (B) any license or rights under any contract or rights as lessee of
any equipment or software, to the extent that (i) the grant of a security
interest therein would be contrary to applicable law, or (ii) such license or
contract or lease prohibits the grant of a security interest therein (but only
to the extent such prohibition is enforceable under applicable law). Except as
disclosed on Exhibit 1 hereto, Borrower represents and warrants to Silicon that
it is not presently a party to, nor is it bound by, any material in-bound
software license relating to its SLMS, access node or IMACS product lines (which
Borrower represents are all of its material product lines) which prohibits
Borrower from granting a security interest therein to Silicon (to the extent
such prohibition is enforceable under applicable law). Borrower shall not,
hereafter, without Silicon's prior written consent, enter into any material
in-bound software license relating to its SLMS, access node or IMACAS product
lines which prohibits Borrower from granting a security interest therein to
Silicon (to the extent such prohibition is enforceable under applicable law),
unless Borrower uses commercially reasonable efforts to have such prohibition
removed, and in the event Borrower is not successful in having such prohibition
removed, Borrower shall give prompt written notice thereof to Silicon.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Bor rower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants, throughout the
term of this Agreement and until all Obligations (other than contingent
indemnification obligations) have been paid and performed in full:
3.1 Corporate Existence and Authority. Borrower is and will continue to
be, duly organized, validly existing and in good standing under the laws of the
State of Delaware. Borrower is and will continue to be qualified and licensed to
do business in all jurisdictions in which any failure to do so would reasonably
be expected to result in a Material Adverse Change. The execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby (i) have been duly and validly authorized, (ii) are enforceable against
Borrower in accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors' rights generally), and (iii) do not
violate Borrower's Certificate of Incorporation, or Borrower's by-laws, or any
law or any material agreement or instrument which is binding upon Borrower or
its property, and (iv) do not constitute grounds for acceleration of any
material indebtedness or obligation under any agreement or instrument which is
binding upon Borrower or its property.
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed in the Representations are
all prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, in all material respects, with all laws relating to the
conduct of business under a fictitious business name, except where the failure
to so comply would not reasonably be expected to result in a Material Adverse
Change.
3.3 Place of Business; Location of Collateral. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business, and Collateral with a fair market value of more
than $100,000 is located, only at the locations set forth in the Representations
and other locations where collateral may from time to time be kept temporarily
for testing, sales or demonstration purposes in the ordinary course of business.
Borrower will give Silicon at least 30 days prior written notice before opening
any additional place of business, changing its chief executive office, or moving
more than $100,000 any of the Collateral (other than in connection with
temporary arrangements for testing, sales or demonstration purposes in the
ordinary course of business) to a location other than Borrower's Address or one
of the locations set forth in the Representations, except that Borrower may
maintain sales offices in the ordinary course of business at which not more than
a total of $50,000 fair market value of Collateral is located at any one
location in the ordinary course of business, and Borrower may maintain Inventory
and Equipment with contract manufacturers for Borrower in the ordinary course of
Borrower's business.
3.4 TITLE TO COLLATERAL; PERFECTION; PERMITTED LIENS.
(a) Borrower is now, and will at all times in the future be, the
sole owner of all the Collateral, except for licensed property rights and items
of Equipment and related software which are leased to Borrower. The Collateral
now is and will remain free and clear of any and all liens, charges, security
interests, encumbrances and adverse claims, except for Permitted Liens. Silicon
now has, and will continue to have, a first-priority perfected and enforceable
security interest in all of the Collateral, subject only to the Permitted Liens,
and Borrower will at all times defend the Collateral against all encumbrances
(other than Permitted Liens) and adverse claims of others (other than Permitted
Liens).
(b) Borrower has set forth in the Representations all of Borrower's
Deposit Accounts, and Borrower will give Silicon five Business Days advance
written notice before establishing any new Deposit Accounts in which Borrower
holds a balance of more than $20,000 (except that the total of amounts in all
Deposit Accounts with a balance of $20,000 or less and as to which written
notice of the same is not given to Silicon shall not exceed $250,000 in the
aggregate), and will cause the institution where any such new Deposit Account is
maintained to execute and deliver to Silicon a control agreement in form
sufficient to perfect Silicon's security interest in the Deposit Account and
otherwise satisfactory to Silicon in its good faith business judgment. Nothing
herein limits any requirements which may be set forth in the Schedule as to
where Deposit Accounts will be maintained.
(c) In the event that Borrower shall at any time after the date
hereof have any commercial tort claims against others, which it is asserting or
intends to assert, and in which the potential recovery exceeds $500,000,
Borrower shall promptly notify Silicon thereof in writing and provide Silicon
with such information regarding the same as Silicon shall request (unless
providing such information would waive the Borrower's attorney-client
privilege). Such notification to Silicon shall constitute a grant of a security
interest in the commercial tort claim and all proceeds thereof to Silicon, and
Borrower shall execute and deliver all such documents and take all such actions
as Silicon shall reasonably request in connection therewith.
(d) None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture. Borrower
is not and will not become a lessee under any real property lease pursuant to
which the lessor may obtain any rights in any of the Collateral, other than
Permitted Liens, and no such lease now prohibits, restrains, impairs or will
prohibit, restrain or impair Borrower's right to remove any Collateral from the
leased premises. Whenever any Collateral is located upon premises in which any
third party has an interest, Borrower shall, whenever requested by Silicon, use
its commercially reasonable to cause such third party to execute and deliver to
Silicon, in form acceptable to Silicon, such waivers and subordinations as
Silicon shall specify in its good faith business judgment. Borrower will keep in
full force and effect, and will comply with all material terms of, any lease of
real property where any of the Collateral now or in the future may be located to
the extent such failure could reasonably be expected to result in a Material
Adverse Change.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral
consisting of tangible personal property in good working condition (ordinary
wear and tear excepted), and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.6 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
3.7 Financial Condition, Statements and Reports. All financial statements
now or in the future delivered to Silicon have been, and will be, prepared in
conformity with GAAP and now and in the future will fairly present the results
of operations
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
and financial condition of Borrower, in accordance with GAAP, at the times and
for the periods therein stated. Between the last date covered by any such
statement provided to Silicon and the date hereof, there has been no Material
Adverse Change.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all required tax returns and reports, and Borrower
has timely paid, and will timely pay, all foreign, federal, state and local
taxes, assessments, deposits and contributions now or in the future owed by
Borrower. Borrower may, however, defer payment of any contested taxes, provided
that Borrower (i) in good faith contests Borrower's obligation to pay the taxes
by appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Silicon in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. Borrower is unaware of any claims or adjustments proposed for any of
Borrower's prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid, and shall continue to pay all
amounts necessary to fund all present and future pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.
3.9 Compliance With Law. Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations applicable to Borrower,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 Litigation. There is no claim, suit, litigation, proceeding or
investigation pending or (to best of Borrower's knowledge) threatened against or
affecting Borrower in any court or before any governmental agency (or any basis
therefor known to Borrower) which could reasonably be expected to result, either
separately or in the aggregate, in any Material Adverse Change. Borrower will
promptly inform Silicon in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted against Borrower involving
any uninsured claim or claims involving $1,000,000 or more in the aggregate
asserted in any fiscal year, or which could reasonably be expected to result,
either separately or in the aggregate, in a Material Adverse Change.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. ACCOUNTS.
4.1 Representations Relating to Accounts. Borrower represents and warrants
to Silicon as follows: Each Account with respect to which Loans are requested by
Borrower shall, on the date each Loan is requested and made, (i) represent an
undisputed bona fide existing unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods or the rendition of
services, or the non-exclusive licensing of Intellectual Property, in the
ordinary course of Borrower's business, and (ii) meet the Minimum Eligibility
Requirements set forth in Section 8 below.
4.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Accounts are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Account shall comply in all
material respects with all applicable laws and governmental rules and
regulations. To the best of Borrower's knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Accounts are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms
(except as enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally).
4.3 Schedules and Documents Relating to Accounts. Borrower shall deliver
to Silicon transaction reports and schedules of collections, as provided in the
Schedule, on Silicon's standard forms; provided, however, that Borrower's
failure to execute and deliver the same shall not affect or limit Silicon's
security interest and other rights in all of Borrower's Accounts, nor shall
Silicon's failure to advance or lend against a specific Account affect or limit
Silicon's security interest and other rights therein. If requested by Silicon,
Borrower shall furnish Silicon with copies (or, at Silicon's reasonable request,
originals) of all contracts, orders, invoices, and other similar documents, and
all shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Accounts, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Silicon an aged accounts receivable trial balance
as provided in the Schedule. In addition, Borrower shall deliver to Silicon, on
its request, the originals of all instruments, chattel
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
paper, security agreements, guarantees and other documents and property
evidencing or securing any Accounts, in the same form as received, with all
necessary indorsements, and copies of all credit memos.
4.4 Collection of Accounts. Borrower shall have the right to collect all
Accounts, unless and until a Default or an Event of Default has occurred and is
continuing. Whether or not an Event of Default has occurred and is continuing,
Borrower shall hold all payments on, and proceeds of, Accounts in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed, to be applied to the Revolving
Loans in such order as Silicon shall determine, and if the Revolving Loans have
been repaid in full, any excess shall be promptly remitted by Silicon to the
Borrower. Silicon may, in its good faith business judgment, require that all
proceeds of Collateral be deposited by Borrower into a lockbox account, or such
other "blocked account" as Silicon may specify, pursuant to a blocked account
agreement in such form as Silicon may specify in its good faith business
judgment.
4.5 Remittance of Proceeds. All proceeds arising from the disposition of
any Collateral shall be delivered, in kind, by Borrower to Silicon in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Revolving Loans in
such order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred and is continuing, (i) Borrower shall not be obligated to
remit to Silicon the proceeds of the sale of worn out or obsolete Equipment
disposed of by Borrower in good faith in an arm's length transaction for an
aggregate purchase price of $25,000 or less (for all such transactions in any
fiscal year) and (ii) if the Revolving Loans have been repaid in full, any
excess shall be promptly remitted by Silicon to the Borrower. Borrower agrees
that it will not commingle proceeds of Collateral with any of Borrower's other
funds or property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for Silicon. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
4.6 Disputes. On Silicon's request, from time to time, Borrower shall
notify Silicon of all disputes or claims relating to Accounts. Borrower shall
not forgive (completely or partially), compromise or settle any Account for less
than payment in full, or agree to do any of the foregoing, except that Borrower
may do so, provided that: (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm's length
transactions, which are reported to Silicon on the regular reports provided to
Silicon; (ii) no Default or Event of Default has occurred and is continuing; and
(iii) taking into account all such discounts, settlements and forgiveness, the
total outstanding Loans will not exceed the Credit Limit.
4.7 Returns. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower, Borrower shall promptly
determine the reason for such return and promptly issue a credit memorandum to
the Account Debtor in the appropriate amount. In the event any attempted return
occurs after the occurrence and during the continuance of any Event of Default,
Borrower shall hold the returned Inventory in trust for Silicon, and immediately
notify Silicon of the return of the Inventory.
4.8 Verification. Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Accounts, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
4.9 No Liability. Silicon shall not be responsible or liable for any
shortage or discrepancy in, damage to, or loss or destruction of, any goods, the
sale or other disposition of which gives rise to an Account, or for any error,
act, omission, or delay of any kind occurring in the settlement, failure to
settle, collection or failure to collect any Account, or for settling any
Account in good faith for less than the full amount thereof, nor shall Silicon
be deemed to be responsible for any of Borrower's obligations under any contract
or agreement giving rise to an Account. Nothing herein shall, however, relieve
Silicon from liability for its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF BORROWER.
5.1 Financial and Other Covenants. Borrower shall at all times, during the
term of this Agreement and while any Obligations (other than contingent
indemnification obligations) are outstanding, comply with the financial and
other covenants set forth in the Schedule.
5.2 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require and that are customary and in accordance with standard
practices for Borrower's industry and locations, and Borrower shall provide
evidence of such insurance to Silicon. All such insurance policies shall name
Silicon as an additional loss payee (subject to the rights of the holders of
Permitted Liens holding claims senior to Silicon), and shall contain a lenders
loss payee endorsement in form reasonably acceptable to Silicon. Upon receipt of
the proceeds of any such insurance, subject to the rights of the holders of
Permitted Liens holding claims senior to Silicon, Silicon shall apply such
proceeds in reduction of the Obligations as Silicon shall determine in its good
faith business judgment, except that, provided no Default or Event of Default
has occurred and is continuing, Silicon shall release to Borrower insurance
proceeds from each event of loss totaling
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less than $1,000,000, which shall be used by Borrower for ordinary business
purposes or, as applicable, the replacement of Equipment with respect to which
the insurance proceeds were paid. Silicon may require reasonable assurance that
the insurance proceeds so released will be so used. If Borrower fails to provide
or pay for any insurance, Silicon may, but is not obligated to, obtain the same
at Borrower's expense, to the extent necessary to protect Silicon's interest in
the Collateral and upon prompt written notice to Borrower. Borrower shall
promptly deliver to Silicon copies of all material reports made to insurance
companies.
5.3 Reports. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time specify in
its good faith business judgment.
5.4 Access to Collateral, Books and Records. At reasonable times, and on
one Business Day's notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit and will exercise the same
degree of care that it exercises for its own proprietary information, but
Silicon shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The foregoing inspections and audits shall be at Borrower's expense and
the charge therefor shall be $700 per person per day (or such higher amount as
shall represent Silicon's then current standard charge for the same), plus
reasonable out-of-pocket expenses. In the event Borrower and Silicon schedule an
audit more than 10 days in advance, and Borrower seeks to reschedules the audit
with less than five days written notice to Silicon, then (without limiting any
of Silicon's rights or remedies), Borrower shall pay Silicon a cancellation fee
of $1,000 plus any out-of-pocket expenses incurred by Silicon, to compensate
Silicon for the anticipated costs and expenses of the cancellation.
5.5 Negative Covenants. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent (which shall be a
matter of its good faith business judgment), do any of the following:
(i) merge or consolidate with another corporation or entity without
Silicon's prior written consent (which shall not be unreasonably withheld,
delayed or conditioned), except that nothing herein shall prohibit any of
Borrower's directly or indirectly wholly-owned subsidiaries from merging into
Borrower (in a transaction in which the Borrower is the surviving corporation)
or into eachother;
(ii) acquire any assets, except for (A) acquisitions of assets in
the ordinary course of business; and (B) acquisitions outside the ordinary
course of business, with Silicon's prior written consent (which consent shall
not be unreasonably withheld, delayed or conditioned). In connection with any
acquisition outside the ordinary course of business, Borrower may set up a
subsidiary which has nominal assets in preparation for such acquisition, prior
to obtaining Silicon's prior written consent;
(iii) enter into any other material transaction outside the ordinary
course of business, without Silicon's prior written consent (which shall not be
unreasonably withheld, delayed or conditioned), except that Silicon's consent
shall not be required for the issuance of equity securities of Borrower (subject
to the provisions of Section 7.1(n)) or debt securities of Borrower which are
subordinated to the Obligations on terms and conditions acceptable to Silicon in
its good faith business judgment;
(iv) sell or transfer any Collateral, except for (A) the sale of
finished Inventory in the ordinary course of Borrower's business, (B) the sale
of obsolete or unneeded Equipment in the ordinary course of business; (C)
non-exclusive licenses and similar non-exclusive arrangements for the use of the
property of Borrower in the ordinary course of business; (D) transfers
consisting of the granting of Permitted Liens or the making of Permitted
Investments or the liquidation of Permitted Investments; (E) transfers
consisting of the payment of operating expenses in the ordinary course of
business; and (F) transfers of Inventory and Equipment to Borrower's contract
manufacturers in the ordinary course of Borrower's business.
(v) store any Inventory or other Collateral with any warehouseman
or other third party, except for: (A) temporary arrangements for testing, sales
or demonstration purposes in the ordinary course of business; (B) storage of
Collateral consisting of Inventory or Equipment with a public warehouse or other
bailee in the ordinary course of business, if the public warehouse or other
bailee has signed an agreement in form acceptable to Silicon acknowledging
Silicon's security interest in the same and waiving any lien, security interest
or other right or claim thereto; (C) storage of Collateral consisting of
Inventory or Equipment with a public warehouse or other bailee in the ordinary
course of business, provided the total Collateral so stored under this clause
(C) does not exceed $1,000,000 in book value; (D) storage of Inventory and
Equipment with contract manufacturers for Borrower in the ordinary course of
Borrower's business.
(vi) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis, unless such sales are identified in
Borrower's books and the Accounts arising from such sales are separately
identified in all reports of outstanding Accounts provided to Silicon (and
Borrower acknowledges that such Accounts will not be Eligible Accounts);
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
(vii) make any loans of any money or other assets (except for
Permitted Investments);
(viii) incur any debts, outside the ordinary course of business, which
would result in a Material Adverse Change;
(ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(x) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock; provided, however, that the foregoing shall
not restrict the redemption or repurchase of capital stock from terminated
employees or consultants not to exceed a total of $750,000 for all such
redemptions and repurchases in any fiscal year;
(xii) make any change in Borrower's capital structure which would
result in a Material Adverse Change; or
(xiii) engage, directly or indirectly, in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto; or
(xiv) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Silicon, make available Borrower
and its officers, employees and agents and Borrower's books and records, to the
extent that Silicon may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
5.7 Further Assurances. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may, in its
good faith business judgment, deem necessary or useful in order to perfect and
maintain Silicon's perfected first-priority security interest in the Collateral
(subject to Permitted Liens), and in order to fully consummate the transactions
contemplated by this Agreement.
6. TERM OF REVOLVING LOAN FACILITY AND TERM OF AGREEMENT.
6.1 Term of Revolving Loan Facility. The period during which Revolving
Loans (as defined in the Schedule) will be made (the "Revolving Loan Period")
shall be from the date of this Agreement to the Revolving Loan Maturity Date set
forth in the Schedule, unless sooner terminated in accordance with the terms of
this Agreement. On and after the Revolving Loan Maturity Date or any earlier
termination of this Agreement, no further Revolving Loans will be made. On the
Revolving Loan Maturity Date or on any earlier termination of this Agreement,
Borrower shall pay in full all outstanding Revolving Loans and any accrued and
unpaid interest thereon.
6.2 Early Termination of Revolving Loan Facility At Borrower's Option. The
Revolving Loan Period may be terminated prior to the Revolving Loan Maturity
Date by Borrower, effective three business days after written notice of
termination is given by Borrower to Silicon.
6.3 Term of Agreement. The term of this Agreement shall be from the date
of this Agreement to the later of the following (the "Maturity Date"): (i) the
termination of the Revolving Loan Period, or (ii) the date the last installment
of principal on the Term Loan is due. On the Maturity Date or on any earlier
termination of this Agreement Borrower shall pay in full all Loans and all other
outstanding Obligations, and notwithstanding any termination of this Agreement
all of Silicon's security interests and all of Silicon's other rights and
remedies shall continue in full force and effect until payment and performance
in full of all Obligations (other than contingent indemnification obligations).
6.4 Early Termination of Agreement. This Agreement may be terminated prior
to the Maturity Date by Silicon at any time after the occurrence and during the
continuance of an Event of Default, without notice, effective immediately.
6.5 Termination Fee. If the Revolving Loan Period is terminated by
Borrower under Section 6.2, or if this Agreement is terminated by Silicon under
Section 6.4, then Borrower shall pay to Silicon a termination fee in the amount
set forth in the Schedule. The termination fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate equal
to the highest rate applicable to any of the Obligations.
6.6 Prepayment of Term Loan. Borrower shall not have the right to prepay
the Term Loan in whole or in part, except as provided in the Schedule.
6.7 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
outstanding Loans and other Obligations, whether evidenced by installment notes
or otherwise, and whether or not all or any part of such Obligations are
otherwise then due and payable. Without limiting the generality of the
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
foregoing, if on the Maturity Date, or on any earlier effective date of
termination, there are any outstanding Letters of Credit issued by Silicon or
issued by another institution based upon an application, guarantee, indemnity or
similar agreement on the part of Silicon, then on such date Borrower shall
provide to Silicon cash collateral in an amount equal to 105% of the face amount
of all such Letters of Credit plus all interest, fees and cost due or to become
due in connection therewith (as estimated by Silicon in its good faith business
judgment), to secure all of the Obligations relating to said Letters of Credit,
pursuant to Silicon's then standard form cash pledge agreement. Notwithstanding
any termination of this Agreement, all of Silicon's security interests in all of
the Collateral and all of the terms and provisions of this Agreement shall
continue in full force and effect until all Obligations (other than contingent
indemnification obligations) have been paid and performed in full; provided that
Silicon may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations (other than contingent
indemnification obligations) have been paid and performed in full. Upon payment
and performance in full of all the Obligations (other than contingent
indemnification obligations) and termination of this Agreement, Silicon shall
promptly terminate its financing statements with respect to the Borrower and
deliver to Borrower such other documents as may be required to fully terminate
Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect when made or deemed to be made; or
(b) Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation within two Business Days after the date due; or (c)
the total Loans and other Obligations outstanding at any time shall exceed the
Credit Limit and Borrower shall fail to pay the excess to Silicon within the
time set forth in Section 1.3 hereof; or (d) Borrower shall fail to comply with
any of the financial covenants set forth in the Schedule, or shall fail to
perform any other non-monetary Obligation which by its nature cannot be cured,
or shall fail to permit Silicon to conduct an inspection or audit as specified
in Section 5.4 hereof; or (e) Borrower shall fail to perform any other
non-monetary Obligation, which failure is not cured within five Business Days
after the date due; or (f) any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within 10 days after the Borrower has notice of
the same or in the exercise of reasonable diligence should have had notice of
the same; or (g) any event of default occurs under any obligation secured by a
Permitted Lien that gives the holder thereof the right to accelerate
indebtedness of more than $400,000, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; provided,
however, that the Event of Default under this Section 7.1(g) caused by the
occurrence of an event of default under such other agreement shall be cured or
waived for purposes of this Agreement upon Silicon receiving written notice of
such cure or waiver of the default under such other agreement, if at the time of
such cure or waiver (i) Silicon has not declared an Event of Default under this
Agreement and exercised any rights with respect thereto, and (ii) any such cure
or waiver does not result in an Event of Default under any other provision of
this Agreement, and (iii) in connection with any such cure or waiver, the terms
of any agreement with such third party are not modified or amended in any manner
which are in the good faith judgment of Silicon materially less advantageous to
Borrower; or (h) Borrower breaches any material contract or obligation, which
has resulted or may reasonably be expected to result in a Material Adverse
Change; or (i) Dissolution, termination of existence, insolvency or business
failure of Borrower; or appointment of a receiver, trustee or custodian, for all
or any part of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding by Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or (j) the commencement of any proceeding against Borrower or any Material
Guarantor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; or (k) revocation or
termination of, or limitation or denial of liability upon, any guaranty of the
Obligations by a Material Guarantor or any attempt to do any of the foregoing,
or commencement of proceedings by any Material Guarantor of any of the
Obligations under any bankruptcy or insolvency law; or (l) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any by a Material Guarantor to secure any or all of the Obligations,
or any attempt to do any of the foregoing, or commencement of proceedings by or
against any by a Material Guarantor under any bankruptcy or insolvency law; or
(m) Borrower makes any payment on account of any indebtedness or obligation
which has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or (n) without the prior written consent of Silicon, there shall be a
change in the record or beneficial ownership of an aggregate of more than 35% of
the outstanding shares of stock of Borrower, in one or more transactions,
compared to the ownership of outstanding shares of stock of Borrower in effect
on the date hereof (other than by sale of Borrower's equity securities in a
public offering or to venture capital investors which Borrower identifies to
Silicon prior to closing of the investment or to strategic investors which are
acceptable to Silicon in its good faith business
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
judgment; or (o) Borrower shall generally not pay its debts as they become due,
or Borrower shall conceal, remove or transfer any part of its property, with
intent to hinder, delay or defraud its creditors, or make or suffer any transfer
of any of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or (p) Silicon shall give written notice to Borrower
that, in its good faith business judgment, a Material Adverse Change has
occurred; or (q) Silicon, acting in good faith and in a commercially reasonable
manner, shall give written notice that it deems itself insecure because of the
occurrence of an event prior to the effective date hereof of which Silicon had
no knowledge on the effective date or because of the occurrence of an event on
or subsequent to the effective date. Silicon may cease making any Loans
hereunder during any of the above cure periods, and thereafter if an Event of
Default has occurred and is continuing.
7.2 Remedies. Upon the occurrence and during the continuance of any Event
of Default, and at any time thereafter, Silicon, at its option, and without
notice or demand of any kind (all of which are hereby expressly waived by
Borrower), may do any one or more of the following: (a) Cease making Loans or
otherwise extending credit to Borrower under this Agreement or any other Loan
Document; (b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Silicon without
judicial process to enter onto any of Borrower's premises without interference
to search for, take possession of, keep, store, or remove any of the Collateral,
and remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as Silicon deems it
necessary, in its good faith business judgment, in order to complete the
enforcement of its rights under this Agreement or any other agreement; provided,
however, that should Silicon seek to take possession of any of the Collateral by
court process, Borrower hereby irrevocably waives: (i) any bond and any surety
or security relating thereto required by any statute, court rule or otherwise as
an incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to assemble
any or all of the Collateral and make it available to Silicon at places
designated by Silicon which are reasonably convenient to Silicon and Borrower,
and to remove the Collateral to such locations as Silicon may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral prior to
a disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use Borrower's premises, vehicles, hoists,
lifts, cranes, and other Equipment and all other property without charge; (f)
Sell, lease or otherwise dispose of any of the Collateral, in its condition at
the time Silicon obtains possession of it or after further manufacturing,
processing or repair, at one or more public and/or private sales, in lots or in
bulk, for cash, exchange or other property, or on credit, and to adjourn any
such sale from time to time without notice other than oral announcement at the
time scheduled for sale. Silicon shall have the right to conduct such
disposition on Borrower's premises without charge, for such time or times as
Silicon deems reasonable, or on Silicon's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Silicon may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Accounts and General Intangibles comprising Collateral and,
in connection therewith, Borrower irrevocably authorizes Silicon to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Silicon's good faith business judgment, to grant extensions of
time to pay, compromise claims and settle Accounts and the like for less than
face value; (h) Offset against any sums in any of Borrower's general, special or
other Deposit Accounts with Silicon against any or all of the Obligations; and
(i) Demand and receive possession of any of Borrower's federal and state income
tax returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies, from and
after the occurrence and during the continuance of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an additional
four percent per annum (the "Default Rate"). Silicon will not deliver to any
person any notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any control agreement or similar
agreement providing for control of any Collateral, unless an Event of Default
has occurred and is continuing hereunder.
7.3 Standards for Determining Commercial Reasonableness. Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least ten days prior to the sale, and, in the case of a public sale,
notice of the sale is published at least five days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in
cash or by cashier's check or wire transfer is required;
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
(vi) With respect to any sale of any of the Collateral, Silicon may (but is not
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. Silicon shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
7.4 Power of Attorney. Upon the occurrence and during the continuance of
any Event of Default, without limiting Silicon's other rights and remedies,
Borrower grants to Silicon an irrevocable power of attorney coupled with an
interest, authorizing and permitting Silicon (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Silicon agrees
that if it exercises any right hereunder, it will do so in good faith and in a
commercially reasonable manner: (a) Execute on behalf of Borrower any documents
that Silicon may, in its good faith business judgment, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
Loan Documents; (b) Execute on behalf of Borrower, any invoices relating to any
Account, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (c) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
Borrower upon any instruments, or documents, evidence of payment or Collateral
that may come into Silicon's possession; (d) Endorse all checks and other forms
of remittances received by Silicon; (e) Pay, contest or settle any lien, charge,
encumbrance, security interest and adverse claim in or to any of the Collateral,
or any judgment based thereon, or otherwise take any action to terminate or
discharge the same; (f) Grant extensions of time to pay, compromise claims and
settle Accounts and General Intangibles for less than face value and execute all
releases and other documents in connection therewith; (g) Pay any sums required
on account of Borrower's taxes or to secure the release of any liens therefor,
or both; (h) Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor; (i) Instruct any
third party having custody or control of any books or records belonging to, or
relating to, Borrower to give Silicon the same rights of access and other rights
with respect thereto as Silicon has under this Agreement; and (j) Take any
action or pay any sum required of Borrower pursuant to this Agreement and any
other Loan Documents. Any and all reasonable sums paid and any and all
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Silicon with respect to the foregoing shall be added to and become
part of the Obligations, shall be payable on demand, and shall bear interest at
a rate equal to the highest interest rate applicable to any of the Obligations.
In no event shall Silicon's rights under the foregoing power of attorney or any
of Silicon's other rights under this Agreement be deemed to indicate that
Silicon is in control of the business, management or properties of Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
good faith business judgment, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any sale of
Collateral, Silicon shall have the option, exercisable at any time, in its good
faith business judgment, of either reducing the Obligations by the principal
amount of purchase price or deferring the reduction of the Obligations until the
actual receipt by Silicon of the cash therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set forth
in this Agreement, Silicon shall have all the other rights and remedies accorded
a secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.
8. Definitions. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on an Account.
"Accounts" means all present and future "accounts" as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation
all accounts receivable and other sums owing to Borrower.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
"Business Day" means a day on which Silicon is open for business.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 2 above.
"continuing" and "during the continuance of" when used with reference to a
Default or Event of Default means that the Default or Event of Default has
occurred and has not been either waived in writing by Silicon or cured within
any applicable cure period.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 7.2 above.
"Deposit Accounts" means all present and future "deposit accounts" as
defined in the California Uniform Commercial Code in effect on the date hereof
with such additions to such term as may hereafter be made, and includes without
limitation all general and special bank accounts, demand accounts, checking
accounts, savings accounts and certificates of deposit.
"Eligible Accounts" means Accounts and General Intangibles arising in the
ordinary course of Borrower's business from the sale of goods or the rendition
of services, or the non-exclusive licensing of Intellectual Property, which
Silicon, in its good faith business judgment, shall deem eligible for borrowing.
Without limiting the fact that the determination of which Accounts are eligible
for borrowing is a matter of Silicon's good faith business judgment, the
following (the "Minimum Eligibility Requirements") are the minimum requirements
for a Account to be an Eligible Account: (i) the Account must not be outstanding
for more than 120 days from its invoice date and must have a due date of 60 days
or less from its invoice date and must not be outstanding more than 60 days
after its due date (collectively, the "Eligibility Period"), (ii) the Account
must not represent progress ▇▇▇▇▇▇▇▇, or be due under a fulfillment or
requirements contract with the Account Debtor, (iii) the Account must not be
subject to any contingencies (including Accounts arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
Account Debtor may be conditional), (iv) the Account must not be subject to a
dispute with the Account Debtor (and if it is subject to such a dispute, the
Account will be ineligible only up to the amount of the dispute), (v) the
Account must not be owing from an Affiliate of Borrower, (vi) the Account must
not be owing from an Account Debtor which is subject to any insolvency or
bankruptcy proceeding, or whose financial condition is not acceptable to Silicon
in its good faith business judgment, or which, fails or goes out of a material
portion of its business, (vii) the Account must not be owing from the United
States or any department, agency or instrumentality thereof (unless there has
been compliance, to Silicon's satisfaction, with the United States Assignment of
Claims Act), (viii) the Account must not be owing from an Account Debtor located
outside the United States or Canada (unless pre-approved by Silicon in its
discretion in writing, or backed by a letter of credit satisfactory to Silicon,
or FCIA insured satisfactory to Silicon), (ix) the Account must not be owing
from an Account Debtor to whom Borrower is or may be liable for goods purchased
from such Account Debtor or otherwise (but, in such case, the Account will be
deemed not eligible only to the extent of any amounts owed by Borrower to such
Account Debtor), (x) the Account must not be owing from an Account Debtor with
respect to whom Borrower has deferred revenue (but, in such case, the Account
will be deemed not eligible only to the extent of the amount of such deferred
revenue). Accounts owing from one Account Debtor will not be deemed Eligible
Accounts to the extent they exceed 25% of the total Accounts outstanding. In
addition, if more than 30% of the Accounts owing from an Account Debtor are
outstanding for a period longer than their Eligibility Period (without regard to
unapplied credits), then all Accounts owing from that Account Debtor will be
deemed ineligible for borrowing. Silicon may, from time to time, in its good
faith business judgment, revise the Minimum Eligibility Requirements, with ten
days advance written notice to Borrower.
"Equipment" means all present and future "equipment" as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation
all machinery, fixtures, goods, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing.
"Event of Default" means any of the events set forth in Section 7.1 of this
Agreement.
"Exim Agreement", "Exim Loans", "Non-Exim Loans", and "Exim Bank" have the
meanings set forth in the Schedule.
"GAAP" means generally accepted accounting principles consistently applied.
"General Intangibles" means all present and future "general intangibles" as
defined in the California Uniform Commercial Code in effect on the date hereof
with such additions to such term as may hereafter be made, and includes without
limitation all Intellectual Property, payment intangibles, royalties, contract
rights, goodwill, franchise agreements, purchase orders, customer lists, route
lists, telephone numbers, domain names, claims, income tax refunds, security and
other deposits, options to purchase or sell real or personal property, rights in
all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
"good faith business judgment" means honesty in fact and good faith (as
defined in Section 1201 of the Code) in the exercise of Silicon's business
judgment.
"Guarantor" means any present or future guarantor of all or any part of the
Obligations, and "Material Guarantor" means any Guarantor other than a Guarantor
which, at the pertinent time, has less than $200,000 in tangible assets and less
than $1,000,000 in fair market value of total assets.
"including" means including (but not limited to).
"Intellectual Property" means all present and future (a) copyrights,
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, (b) trade secret rights, including all rights to
unpatented inventions and know-how, and confidential information; (c) mask work
or similar rights available for the protection of semiconductor chips; (d)
patents, patent applications and like protections including without limitation
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade styles,
and trade names, whether or not any of the foregoing are registered, and all
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
any such trademarks; (f) computer software and computer software products; (g)
designs and design rights; (h) technology; (i) all claims for damages by way of
past, present and future infringement of any of the rights included above; (j)
all licenses or other rights to use any property or rights of a type described
above.
"Inventory" means all present and future "inventory" as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without limitation
all merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products, including without limitation such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returned goods and any documents of title representing
any of the above.
"Investment Property" means all present and future investment property,
securities, stocks, bonds, debentures, debt securities, partnership interests,
limited liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets held
in any securities account or otherwise, and all options and warrants to purchase
any of the foregoing, wherever located, and all other securities of every kind,
whether certificated or uncertificated.
"Loan Documents" means, collectively, this Agreement, the Representations,
and all other present and future documents, instruments and agreements between
Silicon and Borrower, including, but not limited to those relating to this
Agreement, and all amendments and modifications thereto and replacements
therefor.
"Material Adverse Change" means any of the following: (i) a material
adverse change in the business, operations, or financial or other condition of
the Borrower, or (ii) a material impairment of the prospect of repayment of any
portion of the Obligations; or (iii) a material impairment of the value or
priority of Silicon's security interests in the Collateral.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, or otherwise, whether arising from an
extension of credit, opening of a letter of credit, banker's acceptance, loan,
guaranty, indemnification or otherwise, whether direct or indirect (including,
without limitation, those acquired by assignment and any participation by
Silicon in Borrower's debts owing to others), absolute or contingent, due or to
become due, including, without limitation, all interest, charges, expenses,
fees, attorney's fees, expert witness fees, audit fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, termination fees,
minimum interest charges and any other sums chargeable to Borrower under this
Agreement or under any other Loan Documents.
"Other Property" means the following as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term as
may hereafter be made, and all rights relating thereto: all present and future
"commercial tort claims" (including without limitation any commercial tort
claims identified in the Representations), "documents", "instruments",
"promissory notes", "chattel paper", "letters of credit", "letter-of-credit
rights", "fixtures", "farm products" and "money"; and all other goods and
personal property of every kind, tangible and intangible, whether or not
governed by the California Uniform Commercial Code.
"Permitted Investments" are:
(a) Investments shown on Exhibit 2 and existing on the effective date
hereof;
(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 Ratings
Service ("S&P") or ▇▇▇▇▇'▇ Investors Service, Inc. ("Moody's"), (iii) Silicon's
certificates of deposit issued maturing no more than 1 year after issue, (iv)
Investments permitted by
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
Borrower's investment policy, as amended from time to time, provided that such
investment policy (and such amendments thereto) has been approved by Silicon in
writing (which approval shall not be unreasonably withheld, conditioned or
delayed);
(c) Investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business;
(d) Investments consisting of (i) compensation of employees, officers,
directors and consultants so long as the Board of Directors of Borrower
determines that such compensation is reasonable and in the best interests of
Borrower; (ii) travel advances and employee relocation loans and other employee
advances in the ordinary course of business, and (iii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower
pursuant to employee stock purchase plan and employee stock option plan
agreements approved by Borrower's Board of Directors, in an aggregate amount not
to exceed $1,000,000 at any time outstanding;
(e) Investments (including debt obligations) received in connection with
the bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;
(f) Investments consisting of notes receivable of, or prepaid royalties
and other credit extensions, to customers and suppliers who are not Affiliates,
in the ordinary course of business;
(g) Strategic investments in customers, vendors, suppliers and other
Persons in the same industries as Borrower and its Subsidiaries, including the
exercise of warrants to purchase capital stock of such Persons in an aggregate
amount not to exceed $500,000 per year;
(h) Deposit and investment accounts of Borrower in which Silicon has a
Lien prior to any other Lien (other than Liens securing fees and expenses of the
depository or investment intermediary); and
(i) loans or investments in consolidated subsidiaries from time to time in
an amount sufficient to fund operating expenses of said subsidiaries.
"Permitted Liens" means the following: (i) purchase money security
interests in specific items of Equipment and related software; (ii) leases of
specific items of Equipment and related software; (iii) liens for taxes not yet
delinquent or being contested in good faith and for which adequate reserves have
been made, and as to which there is no lien on any of the Collateral; (iv)
additional security interests and liens consented to in writing by Silicon,
which consent may be withheld in its good faith business judgment; (v) security
interests being terminated substantially concurrently with this Agreement; (vi)
liens of materialmen, mechanics, warehousemen, carriers, or other similar liens
arising in the ordinary course of business and securing obligations which are
not delinquent; (vii) non-exclusive licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a licensor
or under any license or sublicense to Borrower; (viii) liens in a total amount
not to exceed $1,000,000 on ▇▇▇▇▇▇▇ money deposits required under a letter of
intent or purchase agreement which are in connection with transactions permitted
by this Agreement and are consented to by Silicon in its good faith business
judgment, provided such funds are at all times kept in a segregated escrow
account; (ix) liens to secure non-delinquent payment of workers' compensation,
unemployment insurance, old-age pensions, social security and other like
obligations incurred in the ordinary course of business; (x) liens on insurance
proceeds in favor of insurance companies granted solely as security for financed
premiums, provided such Liens are confined to such premiums and further,
provided, the aggregate amount of such liens does not at any time exceed
$1,000,000; (xi) liens on escrowed cash in an aggregate amount not exceeding
$1,000,000, representing a portion of the proceeds of sales or transactions
permitted by this Agreement, established to satisfy contingent post closing
obligations that Borrower owes (including earn-outs, indemnities and working
capital adjustments) so long as such Liens are disclosed in writing to Silicon
at or prior to the date they arise; (xii) leases or subleases granted in the
ordinary course of Borrower's business, including in connection with Borrower's
leased premises or leased property; (xiii) [intentionally omitted]; (xv) liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or (ii)
above, provided that any extension, renewal or replacement lien is limited to
the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (xiv)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods; (xv) governmental
liens in connection with progress payments made on government contracts which
are limited to the Inventory being sold pursuant to such government contract;
(xvi) a security interest in the Collateral in favor of CIT Venture Leasing
Fund, LLC and CIT Technology Financing Services, Inc., provided the same is
subject to a subordination agreement in favor of Silicon in form acceptable to
Silicon in its good faith business judgment. Silicon will have the right to
require, as a condition to its consent under subparagraph (iv) above, that the
holder of the additional security interest or lien sign an intercreditor
agreement on Silicon's then standard form, acknowledge that the security
interest is subordinate to the security interest in favor of Silicon, and agree
not to take any action to enforce its subordinate security interest so long as
any Obligations remain outstanding, and that Borrower agree that
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Representations" means the written Representations and Warranties provided
by Borrower to Silicon referred to in the Schedule.
"Reserves" means, as of any date of determination, such amounts as Silicon
may from time to time establish and revise in its good faith business judgment,
reducing the amount of Loans, Letters of Credit and other financial
accommodations which would otherwise be available to Borrower under the lending
formula(s) provided in the Schedule: (a) to reflect events, conditions,
contingencies or risks which, as determined by Silicon in its good faith
business judgment, do or may adversely affect (i) the Collateral or any other
property which is security for the Obligations or its value (including without
limitation any increase in delinquencies of Accounts), (ii) the assets, business
or prospects of Borrower or any Material Guarantor, on a consolidated basis, or
(iii) the security interests and other rights of Silicon in the Collateral
(including the enforceability, perfection and priority thereof); or (b) to
reflect Silicon's good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any Material Guarantor to
Silicon is or may have been incomplete, inaccurate or misleading in any material
respect; or (c) in respect of any state of facts which Silicon determines in
good faith constitutes an Event of Default or may, with notice or passage of
time or both, constitute an Event of Default.
Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with GAAP,
consistently applied. All other terms contained in this Agreement, unless
otherwise indicated, shall have the meanings provided by the Code, to the extent
such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Accounts and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day, provided that sums received by wire transfer
will be applied on the date of receipt. Silicon shall not, however, be required
to credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its good faith business judgment, and Silicon may
charge Borrower's loan account for the amount of any item of payment which is
returned to Silicon unpaid.
9.2 Application of Payments. All payments with respect to the Obligations
may be applied, and in Silicon's good faith business judgment reversed and
re-applied, to the Obligations, in such order and manner as Silicon shall
determine in its good faith business judgment.
9.3 Charges to Accounts. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 Monthly Accountings. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within 60 days after such account is
rendered, describing the nature of any alleged errors or omissions.
9.5 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Silicon or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Silicon shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expiration of one Business
Day following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
all prior and
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
9.8 Waivers; Indemnity. The failure of Silicon at any time or times to
require Borrower to strictly comply with any of the provisions of this Agreement
or any other Loan Document shall not waive or diminish any right of Silicon
later to demand and receive strict compliance therewith. Any waiver of any
default shall not waive or affect any other default, whether prior or
subsequent, and whether or not similar. None of the provisions of this Agreement
or any other Loan Document shall be deemed to have been waived by any act or
knowledge of Silicon or its agents or employees, but only by a specific written
waiver signed by an authorized officer of Silicon and delivered to Borrower.
Borrower waives the benefit of all statutes of limitations relating to any of
the Obligations or this Agreement or any other Loan Document, and Borrower
waives demand, protest, notice of protest and notice of default or dishonor,
notice of payment and nonpayment, release, compromise, settlement, extension or
renewal of any commercial paper, instrument, account, General Intangible,
document or guaranty at any time held by Silicon on which Borrower is or may in
any way be liable, and notice of any action taken by Silicon, unless expressly
required by this Agreement. Borrower hereby agrees to indemnify Silicon and its
affiliates, subsidiaries, parent, directors, officers, employees, agents, and
attorneys, and to hold them harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, causes of action, penalties, costs
and expenses (including reasonable attorneys' fees), of every kind, which they
may sustain or incur based upon or arising out of any of the Obligations, or any
relationship or agreement between Silicon and Borrower, or any other matter,
relating to Borrower or the Obligations; provided that this indemnity shall not
extend to damages proximately caused by the indemnitee's own gross negligence or
willful misconduct. Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full force
and effect.
9.9 No Liability for Ordinary Negligence. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Silicon.
9.11 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.12 Attorneys' Fees and Costs. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and all present and future documents relating to this Agreement;
obtain legal advice in connection with this Agreement or Borrower; enforce, or
seek to enforce, any of its rights; prosecute actions against, or defend actions
by, Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce Silicon's security interest in, the Collateral; and
otherwise represent Silicon in any litigation relating to Borrower. In
satisfying Borrower's obligation hereunder to reimburse Silicon for attorneys
fees, Borrower may, for convenience, issue checks directly to Silicon's
attorneys, Levy, Small & ▇▇▇▇▇▇, but Borrower acknowledges and agrees that Levy,
Small & ▇▇▇▇▇▇ is representing only Silicon and not Borrower in connection with
this Agreement. If either Silicon or Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and attorneys' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. All attorneys' fees and costs to which Silicon may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
9.13 Benefit of Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void. No consent by Silicon to any assignment shall release
Borrower from its liability for the Obligations.
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
9.14 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 Limitation of Actions. Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other Loan Document, or any other transaction contemplated hereby or thereby or
relating hereto or thereto, or any other matter, cause or thing whatsoever,
occurred, done, omitted or suffered to be done by Silicon, its directors,
officers, employees, agents, accountants or attorneys, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such claim or cause of action, or
any part thereof, is based, and the service of a summons and complaint on an
officer of Silicon, or on any other person authorized to accept service on
behalf of Silicon, within thirty (30) days thereafter. Borrower agrees that such
one-year period is a reasonable and sufficient time for Borrower to investigate
and act upon any such claim or cause of action. The one-year period provided
herein shall not be waived, tolled, or extended except by the written consent of
Silicon in its sole discretion. This provision shall survive any termination of
this Loan Agreement or any other Loan Document.
9.16 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed strictly
against Silicon or Borrower under any rule of construction or otherwise.
9.17 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa ▇▇▇▇▇ County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Borrower: Silicon:
ZHONE TECHNOLOGIES, INC. SILICON VALLEY BANK
By By
------------------------------- -----------------------------
President or Vice President Title
--------------------------
Form: -3 (3/7/02)
Version -9
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SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: ZHONE TECHNOLOGIES, INC.
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
DATE: DECEMBER 30, 2002
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date. Concurrently the
parties are entering into a Loan and Security Agreement (Exim Program) (the
"Exim Agreement").
================================================================================
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the sum of 1 and 2 below:
1. Revolving Loans. Loans (the "Revolving Loans") in amount
not to exceed the lesser of $15,000,000 at any one time
outstanding (the "Revolving Credit Limit"), or 80% (the
"Advance Rate") of the amount of Borrower's Eligible
Accounts (as defined in Section 8 above)
plus
2. Term Loan. An amount equal to the unpaid principal
balance from time to time outstanding of the loan (the "Term
Loan") being made pursuant hereto in the total original
principal amount of $3,000,000.
Silicon may, from time to time, modify the Advance Rate, in
its good faith business judgment, upon five days prior
written notice to the Borrower, based on changes in
collection experience with respect to Accounts, and other
issues or factors relating to the Accounts or other
Collateral. The Revolving Loans may be repaid and reborrowed
from time to time without penalty or premium.
Term Loan The Term Loan will be made in one disbursement within ten
days after the later of (i) the date the Borrower receives
the cash proceeds (the "Liquidity Event Proceeds") from the
closing of a Liquidity Event (as defined below) or (ii)
Silicon's written approval of the Liquidity Event.
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
The Term Loan is conditioned on Borrower closing a Liquidity
Event and demonstrating to Silicon's satisfaction, in its
good faith business judgment, that the Liquidity Event
Proceeds are sufficient to enable Borrower to be in
compliance with the financial covenants and other provisions
of this Agreement through the Maturity Date.
As used herein, "Liquidity Event" means the issuance of
equity securities of the Borrower after the date hereof, or
another liquidity event or transaction, which is in an
amount, form and in all other respects, approved by Silicon
in its good faith business judgment.
Nothing herein shall excuse any default or Event of Default
resulting from any failure of the Borrower to be in
compliance with the financial covenants or any other
provisions of this Agreement through the Maturity Date, even
if it turns out that the Liquidity Event Proceeds were not
in fact sufficient to enable Borrower to be in compliance
with the same through the Maturity Date.
The Term Loan shall be repaid by Borrower to Silicon in 36
equal monthly payments of principal and interest, commencing
on the first day of the first month after the month in which
the disbursement of the Term Loan is made (unless the
disbursement is made on the first day of a month, in which
event the first payment shall be due on the disbursement
date), and continuing on the first day of each subsequent
month until the earlier of the following dates (the "Term
Loan Maturity Date"): (i) the third anniversary of the date
the Term Loan is made, or (ii) the date the Term Loan has
been indefeasibly paid in full. On the Term Loan Maturity
Date, the entire unpaid principal balance of the Term Loan,
plus all accrued and unpaid interest thereon, shall be due
and payable. Interest on the Term Loan shall be payable
monthly as provided for in Section 1.2 of this Agreement.
The Term Loan may be prepaid, in whole, but not in part,
upon payment to Silicon of: (a) all outstanding principal of
the Term Loan; (b) all unpaid accrued interest on the Term
Loan as of the date of prepayment; and (c) all other amounts
then due and payable arising under this Agreement.
As used in this Agreement, "Loans" includes the Revolving
Loans and the Term Loan.
Sublimits The following Letter of Credit Sublimit, Cash Management
--Overall Limit Sublimit and FX Sublimit shall be applicable during the term
of this Agreement, provided, however, that the total of the
Letter of Credit Sublimit, the Cash Management Sublimit and
the FX Sublimit under this Agreement and the Letter of
Credit Sublimit, the Cash Management Sublimit and the FX
Sublimit under the Exim Agreement shall not at any time
exceed a total of $9,000,000.
Letter of Credit Sublimit
(Section 1.6): $9,000,000.
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
Cash Management
Services
and Reserves: Borrower may use up to $9,000,000 (the "Cash Management
Sublimit") of Loans available hereunder for Silicon's Cash
Management Services (as defined below), including, merchant
services, business credit card, ACH and other services
identified in the cash management services agreement related
to such service (the "Cash Management Services"). Silicon
may, in its sole discretion, reserve against Revolving Loans
which would otherwise be available hereunder such sums as
Silicon shall determine in its good faith business judgment
in connection with the Cash Management Services, and Silicon
may charge to Borrower's Loan account, any amounts that may
become due or owing to Silicon in connection with the Cash
Management Services. Borrower agrees to execute and deliver
to Silicon all standard form applications and agreements of
Silicon in connection with the Cash Management Services,
and, without limiting any of the terms of such applications
and agreements, Borrower will pay all standard fees and
charges of Silicon in connection with the Cash Management
Services. The Cash Management Services shall terminate on
the Maturity Date.
Fx Sublimit: $9,000,000
Borrower may enter into foreign exchange forward contracts
with Silicon, on its standard forms, under which Borrower
commits to purchase from or sell to Silicon a set amount of
foreign currency more than one business day after the
contract date (the "FX Forward Contracts"); provided that
(1) at the time the FX Forward Contract is entered into
Borrower has Revolving Loans available to it under this
Agreement in an amount at least equal to 10% of the amount
of the FX Forward Contract; (2) the total FX Forward
Contracts at any one time outstanding may not exceed 10
times the amount of the FX Sublimit set forth above. Silicon
shall have the right to withhold, from the Revolving Loans
otherwise available to Borrower under this Agreement, a
reserve (which shall be in addition to all other reserves)
in an amount equal to 10% of the total FX Forward Contracts
from time to time outstanding, and in the event at any time
there are insufficient Revolving Loans available to Borrower
for such reserve, Borrower shall deposit and maintain with
Silicon cash collateral in an amount at all times equal to
such deficiency, which shall be held as Collateral for all
purposes of this Agreement, until such time as there exist
sufficient Revolving Loans available to Borrower for such
reserve at which time such cash collateral shall be
released. Silicon may, in its discretion, terminate the FX
Forward Contracts at any time that an Event of Default
occurs and is continuing. Borrower shall execute all
standard form applications and agreements of Silicon in
connection with the FX Forward Contracts, and without
limiting any of the terms of such applications and
agreements, Borrower shall pay
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
all standard fees and charges of Silicon in connection with
the FX Forward Contracts.
Exim Agreement;
Cross-Collateralization;
Cross-Default: Both this Agreement and the Exim Agreement shall continue in
full force and effect, and all rights and remedies under
this Agreement and the Exim Agreement are cumulative. The
term "Obligations" as used in this Agreement and in the Exim
Agreement shall include without limitation the obligation to
pay when due all Loans made pursuant to this Agreement (the
"Non-Exim Loans") and all interest thereon and the
obligation to pay when due all Loans made pursuant to the
Exim Agreement (the "Exim Loans") and all interest thereon.
Without limiting the generality of the foregoing, all
"Collateral" as defined in this Agreement and as defined in
the Exim Agreement shall secure all Exim Loans and all
Non-Exim Loans and all interest thereon, and all other
Obligations. Any Event of Default under this Agreement shall
also constitute an Event of Default under the Exim
Agreement, and any Event of Default under the Exim Agreement
shall also constitute an Event of Default under this
Agreement. In the event Silicon assigns its rights under the
Exim Agreement and/or under any Note evidencing Exim Loans
and/or its rights under this Agreement and/or under any Note
evidencing Non-Exim Loans, to any third party, including
without limitation the Export-Import Bank of the United
States ("Exim Bank"), whether before or after the occurrence
of any Event of Default, Silicon shall have the right (but
not any obligation), in its sole discretion, to allocate and
apportion Collateral to the Agreement and/or Note assigned
and to specify the priorities of the respective security
interests in such Collateral between itself and the
assignee, all without notice to or consent of the Borrower.
================================================================================
2. INTEREST.
Interest Rate (Section 1.2):
With respect to the Revolving Loans:
A rate equal to the "Prime Rate" in effect from time to
time, plus 2% per annum. Interest shall be calculated on the
basis of a 360-day year for the actual number of days
elapsed. "Prime Rate" means the rate announced from time to
time by Silicon as its "prime rate;" it is a base rate upon
which other rates charged by Silicon are based, and it is
not necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall change on
each date there is a change in the Prime Rate.
With respect to the Term Loan:
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
For each disbursement of the Term Loan, a rate equal to the
U.S. Treasury note yield to maturity for a term of 36 months
as quoted in The Wall Street Journal on the day the
disbursement of the Term Loan is advanced, plus 7.81% per
annum. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed.
================================================================================
3. FEES (SECTION 1.4):
Loan Fee: $125,000 for each year that the Revolving Loan facility
under this Agrement or the loan facility under the Exim
Agreement is in place, commencing on the date hereof and
continuing on each anniversary of the date hereof. Said fees
are fully earned on the date hereof and are non-refundable.
Collateral
Monitoring
Fee: $1,000, per month, payable in arrears (prorated for any
partial month at the beginning and at termination of this
Agreement).
Unused Line In the event, in any calendar month (or portion thereof at
Fee: the beginning and end of the term hereof), the average daily
principal balance of the Revolving Loans outstanding during
the month is less than the amount of the Revolving Credit
Limit, Borrower shall pay Silicon an unused line fee in an
amount equal to 0.50% per annum on the difference between
the amount of the Revolving Credit Limit and the average
daily principal balance of the Revolving Loans outstanding
during the month, computed on the basis of a 360-day year,
which unused line fee shall be computed and paid monthly, in
arrears, on the first day of the following month (prorated
for any partial month at the beginning and at termination of
this Agreement).
Termination Fee
(Section 6.2): A total, under this Agreement and the Exim Agreement of one
percent (1%) of the total facility amount under this
Agreement and the Exim Agreement, which is $25,000,000,
provided that no termination fee shall be charged if the
Revolving Loan credit facility hereunder and under the Exim
Agreement is replaced with a new facility from another
division of Silicon Valley Bank.
================================================================================
4. REVOLVING LOAN
MATURITY DATE
(Section 6.1): The first anniversary of the date of this Agreement (the
"Revolving Loan Maturity Date").
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
================================================================================
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with each of the following covenants:
Liquidity As of the end of each month, Borrower shall maintain a total
Ratio: of cash and cash equivalents on deposit with Silicon, plus
Revolving Loan Availability in an amount equal to or greater
than 1.5 times the unpaid principal balance of the Term
Loan.
Remaining
Months
Liquidity: As of the end of each month, Borrower shall maintain a total
of cash and cash equivalents on deposit with Silicon, plus
Revolving Loan Availability in an amount equal to or greater
than 4.0 times the average monthly net loss (if any)
incurred by Borrower for the immediately preceding three
months, determined in accordance with GAAP, net of
amortization and depreciation and non-cash, stock-based
compensation
Minimum
Tangible
Net Worth: As of the end of each month, Borrower shall maintain a
Tangible Net Worth of not less than the following amounts
(the "Minimum Tangible Net Worth Covenant") at the following
dates, plus, in each case, (i) 50% of all consideration
received after the date hereof for equity securities and
subordinated debt of the Borrower, plus (ii) 50% of the
Borrower's net income in each month ending after the date
hereof. Increases in the Minimum Tangible Net Worth Covenant
based on consideration received for equity securities and
subordinated debt of the Borrower shall be effective as of
the end of the month in which such consideration is
received, and shall continue effective thereafter. Increases
in the Minimum Tangible Net Worth Covenant based on net
income shall be effective on the last day of the month in
which said net income is realized, and shall continue
effective thereafter. In no event shall the Minimum Tangible
Net Worth Covenant be decreased.
As of the end of each month Tangible Net Worth
during the following period:
------------------------------------------------------------
September through December, $17,200,000.
2002
------------------------------------------------------------
January through March, 2003 $14,200,000
------------------------------------------------------------
April through June, 2003 $11,600,000
------------------------------------------------------------
July, 2003 through September,
2003 $10,000,000
------------------------------------------------------------
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
Thereafter Such amount as Silicon
shall specify in its
good faith business
judgment by written
notice to Borrower,
after Silicon's receipt
and review of a
financial plan of the
Borrower approved by the
Borrower's board of
directors and acceptable
to Silicon in its good
faith business judgment,
and after consultation
with the Borrower, but
in no event less than
$10,000,000.
------------------------------------------------------------
Definitions. For purposes of the foregoing financial covenants, the
following term shall have the following meaning:
"Revolving Loan Availability" means the sum of the Revolving
Loans available to Borrower under this Agreement and the
Exim Loans available to Borrower under the Exim Agreement.
"Tangible Net Worth" shall mean the excess of total assets
over total liabilities, determined in accordance with GAAP,
with the following adjustments:
(A) there shall be excluded from assets: (i) notes,
accounts receivable and other obligations owing to
Borrower from its officers or other Affiliates, and (ii)
all assets which would be classified as intangible assets
under GAAP, including without limitation goodwill,
licenses, patents, trademarks, trade names, copyrights,
capitalized software and organizational costs, licenses
and franchises
(B) there shall be excluded from liabilities: all
indebtedness which is subordinated to the Obligations
under a subordination agreement in form specified by
Silicon or by language in the instrument evidencing the
indebtedness which Silicon agrees in writing is
acceptable to Silicon in its good faith business
judgment.
================================================================================
6. REPORTING.
(Section 5.3):
Borrower shall provide Silicon with the following:
1. At least weekly, and with each request for a Loan,
transaction reports and schedules of collections, on
Silicon's standard form, provided that such weekly
transactions reports need not be provided until the first
Revolving Loan is made.
2. Monthly accounts receivable agings, aged by invoice date,
within fifteen days after the end of each month. Said
aging shall include
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
identification of Accounts with extended payment terms
beyond 60 days, contract manufacturer Accounts and
warranty Accounts.
3. Monthly accounts payable agings, aged by invoice date,
and outstanding or held check registers, if any, within
fifteen days after the end of each month.
4. Monthly reconciliations of accounts receivable agings
(aged by invoice date), transaction reports, and general
ledger, within fifteen days after the end of each month.
5. Monthly unaudited financial statements, as soon as
available, and in any event within thirty days after the
end of each month.
6. Monthly Compliance Certificates, within thirty days after
the end of each month, in such form as Silicon shall
reasonably specify, signed by the Chief Financial Officer
of Borrower, certifying that as of the end of such month
Borrower was in full compliance with all of the terms and
conditions of this Agreement, and setting forth
calculations showing compliance with the financial
covenants set forth in this Agreement and such other
information as Silicon shall reasonably request,
including, without limitation, a statement that at the
end of such month there were no held checks.
7. Monthly Schedule of unapplied collections (identified by
customer) and Schedule of deferred revenue (identified by
customer), within 15 days after the end of each month.
8. Such other reports as are required to satisfy the
requirements of the Exim Bank in connection with the Exim
Agreement.
9. Annual operating budgets (including income statements,
balance sheets and cash flow statements, by month) for
the upcoming fiscal year of Borrower within thirty days
prior to the end of each fiscal year of Borrower.
10. Annual financial statements, as soon as available, and
in any event within 120 days following the end of
Borrower's fiscal year, certified by, and with an
unqualified opinion of, independent certified public
accountants acceptable to Silicon.
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
================================================================================
7. BORROWER INFORMATION:
Borrower represents and warrants that the information set
forth in the Representations and Warranties of the Borrower
dated December 30, 2002, previously submitted to Silicon
(the "Representations") is true and correct as of the date
hereof.
================================================================================
8. ADDITIONAL PROVISIONS
(1) Banking Relationship. Borrower shall at all times
maintain its primary banking relationship with Silicon.
Without limiting the generality of the foregoing,
Borrower shall, at all times, maintain its primary
operating accounts and not less than 85% of its total
cash and investments on deposit with Silicon. As to any
Deposit Accounts and investment accounts maintained with
another institution, Borrower shall cause such
institution, within 30 days after the date of this
Agreement, to enter into a control agreement in form
acceptable to Silicon in its good faith business
judgment in order to perfect Silicon's first-priority
security interest in said Deposit Accounts and
investment accounts.
(2) Subordination of Inside Debt. All present and future
indebtedness of Borrower to its officers, directors and
shareholders ("Inside Debt") shall, at all times, be
subordinated to the Obligations pursuant to a
subordination agreement on Silicon's standard form.
Borrower represents and warrants that there is no Inside
Debt presently outstanding. Prior to incurring any
Inside Debt in the future, Borrower shall cause the
person to whom such Inside Debt will be owed to execute
and deliver to Silicon a subordination agreement on
Silicon's standard form.
(3) Warrants. Borrower shall provide Silicon with seven-year
warrants to purchase 138,614 shares of Series B
preferred stock of the Borrower, at $2.02 per share, on
terms acceptable to Silicon, as set forth in the Warrant
to Purchase Stock and related documents being executed
concurrently with this Agreement. Said warrants shall be
deemed fully earned on the date hereof, shall be in
addition to all interest and other fees, and shall be
non-refundable.
(4) Subsidiary Guaranties. Concurrently, Borrower shall
cause the following companies (the "Domestic
Subsidiaries") to execute and deliver to Silicon
Continuing Guaranties with respect to all of the
Obligations and Security Agreements and related
documentation with respect to all of their assets, all
in a form
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
agreed upon by Silicon and Borrower, and certified
resolutions or other evidence of authority with respect
to the execution and delivery of such Guaranties and
Security Agreements:
(1) CAG Technologies, Inc.
(2) Optaphone Systems, Inc.
(3) Premisys Communications, Inc.
(4) Vpacket Communications, Inc.
(5) Xybridge Technologies, Inc.
(6) Zhone Merger Subsidiary I, Inc.
(7) Zhone Merger Subsidiary II, Inc.
(8) Zhone Technologies International, Inc.
(9) ZTI Merger Subsidiary, Inc.
Borrower represents and warrants that the Domestic
Subsidiaries are all of its domestic subsidiaries as of
the date hereof, except for Zhone Technologies Campus,
LLC, which Borrower represents and warrants is a special
purpose limited liability company whose sole asset is
real property utilized by Borrower and which is not
permitted to guaranty the obligations of the Borrower
under its agreement with its lender. In the event, in
the future, the Borrower creates or acquires any
additional domestic subsidiaries, Borrower shall
likewise promptly cause such additional domestic
subsidiaries to execute and deliver to Silicon
Continuing Guaranties with respect to all of the
Obligations and Security Agreements and related
documentation with respect to all of their assets, the
same form, and certified resolutions or other evidence
of authority with respect to the execution and delivery
of such Guaranties and Security Agreements. Throughout
the term of this Agreement Borrower shall cause the
Guaranties and Security Agreements referred to in this
Section 8(4) to continue in full force and effect.
(5) Sherwood Trust Financing Statement. Borrower represents
and warrants that (i) Borrower's subsidiary, Optaphone
Systems, Inc. ("Optaphone"), was acquired by Borrower in
2000, and (ii) the UCC-1 Financing Statement filed in
the Office of the California Secretary of State in favor
of Sherwood Trust with respect to Optaphone Systems,
Ltd., a Texas limited partnership (File No. 0123660795,
filed August 21, 2001) does not encumber any of
Borrower's or any of its subsidiaries' (including
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
Optaphone's) assets and does not pertain to Borrower or
any of its subsidiaries (including Optaphone).
Borrower: Silicon:
ZHONE TECHNOLOGIES, INC. SILICON VALLEY BANK
By By
------------------------------- --------------------------------
President or Vice President Title
-----------------------------
Form: -3 (3/7/02)
Version -9
-11-
Exhibit 1
Licenses and other agreements which prohibit
Borrower from granting a security interest therein to Silicon
-1-
Exhibit 2
Existing Permitted Investments