EXHIBIT 10.22
LOAN AND SECURITY AGREEMENT
BETWEEN
EPICEDGE, INC.
AND
SILICON VALLEY BANK
TABLE OF CONTENTS
1 ACCOUNTING AND OTHER TERMS ............................ Page 1
2 LOAN AND TERMS OF PAYMENT ............................. Page 1
2.1 Promise to Pay .................................. Page 1
2.2 Revolving Advances .............................. Page 1
2.3 Cash Management and Letter of Credit Sublimit ... Page 2
2.4 Term Loan ....................................... Page 2
2.5 Overadvances .................................... Page 2
2.6 Interest Rate; Payments ......................... Page 2
2.7 Fees ............................................ Page 4
2.8 Limitation on Credit Extensions ................. Page 4
3 CONDITIONS OF LOANS ................................... Page 4
3.1 Conditions Precedent to Initial Credit
Extension ....................................... Page 4
3.2 Conditions Precedent to all Credit Extensions ... Page 5
4 CREATION OF SECURITY INTEREST ......................... Page 6
4.1 Grant of Security Interest ...................... Page 6
5 REPRESENTATIONS AND WARRANTIES ........................ Page 6
5.1 Due Organization and Authorization .............. Page 7
5.2 Collateral ...................................... Page 7
5.3 Litigation ...................................... Page 7
5.4 No Material Adverse Change in Financial
Statements ...................................... Page 7
5.5 Solvency ........................................ Page 7
5.6 Regulatory Compliance ........................... Page 8
5.7 Subsidiaries .................................... Page 8
5.8 Full Disclosure ................................. Page 8
6 AFFIRMATIVE COVENANTS ................................. Page 8
6.1 Government Compliance ........................... Page 8
6.2 Financial Statements, Reports, Certificates ..... Page 9
6.3 Inventory; Returns .............................. Page 9
6.4 Taxes ........................................... Page 10
6.5 Insurance ....................................... Page 10
6.6 Primary Accounts ................................ Page 10
6.7 Financial Covenants ............................. Page 10
6.8 Other Actions ................................... Page 10
6.9 Further Assurances .............................. Page 10
7 NEGATIVE COVENANTS .................................... Page 11
7.1 Dispositions ..................................... Page 11
7.2 Changes in Business, Ownership, Management or
Business Locations .............................. Page 11
7.3 Mergers or Acquisitions .......................... Page 11
7.4 Indebtedness ..................................... Page 11
7.5 Encumbrance ...................................... Page 12
7.6 Investments; Distributions ....................... Page 12
7.7 Transactions with Affiliates ..................... Page 12
7.8 Subordinated Debt and Other Debt ................. Page 12
7.9 Compliance ....................................... Page 12
8 EVENTS OF DEFAULT ..................................... Page 13
8.1 Payment Default ................................. Page 13
8.2 Covenant Default ................................ Page 13
8.3 Material Adverse Change ......................... Page 13
8.4 Attachment ...................................... Page 13
8.5 Insolvency ...................................... Page 13
8.6 Other Agreements ................................ Page 14
8.7 Judgments ....................................... Page 14
8.8 Misrepresentations .............................. Page 14
8.9 Guaranty ........................................ Page 14
9 BANK'S RIGHTS AND REMEDIES ............................ Page 14
9.1 Rights and Remedies ............................. Page 14
9.2 Power of Attorney ............................... Page 15
9.3 Accounts Collection ............................. Page 16
9.4 Bank Expenses ................................... Page 16
9.5 Bank's Liability for Collateral ................. Page 16
9.6 Remedies Cumulative ............................. Page 16
9.7 Demand Waiver ................................... Page 16
10 NOTICES ............................................... Page 16
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER ........... Page 17
12 GENERAL PROVISIONS .................................... Page 17
12.1 Successors and Assigns .......................... Page 17
12.2 Indemnification ................................. Page 18
12.3 Time of Essence ................................. Page 18
12.4 Severability of Provision ....................... Page 18
12.5 Amendments in Writing, Integration .............. Page 18
12.6 Counterparts .................................... Page 18
12.7 Survival ........................................ Page 19
12.8 Confidentiality ................................. Page 19
12.9 Attorneys' Fees, Costs and Expenses ............. Page 19
12.10 Savings Clause .................................. Page 19
13 DEFINITIONS ........................................... Page 20
13.1 Definitions ..................................... Page 20
14 NOTICE OF FINAL AGREEMENT ............................ Page 28
This Loan and Security Agreement (this "Agreement") dated as of the Effective
Date, between SILICON VALLEY BANK ("Bank") with its principal place of business
at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and with a loan production
office located at 9020 Capital of Texas ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇, and EPICEDGE, INC., a Texas corporation ("Borrower"),
provides the terms on which Bank will lend to Borrower and Borrower will repay
Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation" in this
or any Loan Document. Capitalized terms in this Agreement shall have the
meanings set forth in Section . This Agreement shall be construed to impart upon
Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 PROMISE TO PAY.
Borrower promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions,
as provided herein.
2.2 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding the lesser of (i) the Committed
Revolving Line minus all amounts for services utilized under the Cash
Management Services Sublimit or (ii) the Borrowing Base. Amounts borrowed
under this Section may be repaid and reborrowed during the term of this
Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 12:00 p.m. Pacific time on the Business Day the Advance is to
be made. Borrower must promptly confirm the notification by delivering to
Bank the Payment/Advance Form attached as EXHIBIT B. Bank will credit
Advances to Borrower's deposit account. Bank may make Advances under this
Agreement based on instructions from a Responsible Officer or his or her
designee or without instructions if the Advances are necessary to meet
Obligations which have become due. Bank may rely on any telephone notice
given by a person whom Bank believes is a Responsible Officer or designee.
Borrower will indemnify Bank for any loss Bank suffers due to that
reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.
(d) Bank's obligation to lend the undisbursed portion of the Obligations
will terminate if, in Bank's sole discretion, there has been a material
adverse change in the general affairs,
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management, results of operation, condition (financial or otherwise) or
the prospect of repayment of the Obligations, or there has been any
material adverse deviation by Borrower from the most recent business plan
of Borrower presented to and accepted by Bank prior to the execution of
this Agreement.
2.3 CASH MANAGEMENT AND LETTER OF CREDIT SUBLIMIT.
Borrower may use up to $100,000.00 for Bank's Cash Management Services,
which may include merchant services, direct deposit of payroll, business credit
card, and check cashing services identified in the cash management services
agreements related to such services (the "Cash Management Services") and for
Letters of Credit issued by Bank for Borrower's account. Each Letter of Credit
will have an expiry date of no later than one hundred eighty (180) days after
the Revolving Maturity Date, but Borrower's obligations to reimburse Bank under
the Letters of Credit will be secured by cash on terms acceptable to Bank at any
time after the Revolving Maturity Date if the term of this Agreement is not
extended. Borrower agrees to execute such further documentation in connection
with the Letters of Credit as Bank may reasonably request. Such aggregate
amounts utilized under the Cash Management Services and Letter of Credit
Sublimit will at all times reduce the amount otherwise available to be borrowed
under the Committed Revolving Line. Any amounts Bank pays on behalf of Borrower
or any amounts that are not paid by Borrower for any Cash Management Services or
Letters of Credit will be treated as Advances under the Committed Revolving Line
and will accrue interest at the rate for Advances under the Committed Revolving
Line.
2.4 TERM LOAN.
(a) Bank will make the Term Loan available to Borrower.
(b) Borrower will pay twelve (12) equal installments of principal and
Interest of $35,166.35 (the "Term Loan Payment"). Each Term Loan Payment
is payable on the 5th day of each month during the term of the loan.
Borrower's final Term Loan Payment, due on November 5, 2003, includes all
outstanding Term Loan principal and accrued interest.
(c) Borrower may prepay the Term Loan in full before the Maturity Date,
but only if Borrower accompanies such prepayment with the payment of the
Prepayment Fee.
2.5 OVERADVANCES.
If Borrower's Obligations under Section exceed the lesser of either (i)
the Committed Revolving Line or (ii) the Borrowing Base, or if Borrower's total
Obligations exceed the maximum amount applicable at any given time under Section
2.8, then Borrower must pay in cash to Bank the excess within five Business Days
following demand by Bank.
2.6 INTEREST RATE; PAYMENTS.
(a) Interest Rate. Advances under Section accrue interest on the
outstanding principal balance at a per annum rate of one (1.00%)
percentage points above the Prime Rate. The
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interest rate increases or decreases when the Prime Rate changes. Bank
will not compute the interest in a manner that would cause Bank to
contract for, charge or receive interest that would exceed the Maximum
Lawful Rate or the Maximum Lawful Amount. The outstanding principal amount
of the Term Loan accrues interest at a fixed rate equal to ten percent
(10.00%) per annum. While an Event of Default is continuing, Obligations
accrue interest at 5 percent above the rate effective immediately before
the Event of Default. Interest is computed on a 360 day year for the
actual number of days elapsed.
(b) Spreading of Interest. Due to irregular periodic balances of
principal, the variable nature of the interest rate, or prepayment, the
total interest that will accrue under this Agreement cannot be determined
in advance. Bank does not intend to contract for, charge or receive more
than the Maximum Lawful Rate or Maximum Lawful Amount permitted by
applicable state or federal law, and to prevent such an occurrence Bank
and Borrower agree that all amounts of interest, whenever contracted for,
charged or received by Bank, with respect to the Obligations, will be
spread, prorated or allocated over the full period of time the Obligations
are unpaid, including the period of any renewal or extension thereof. If
the maturity of the Obligations is accelerated for any reason whether as a
result of an Event of Default or otherwise prior to the full stated term,
the total amount of interest contracted for, charged or received to the
time of such demand shall be spread, prorated or allocated along with any
interest thereafter accruing over the full period of time that the
Obligations thereafter remain unpaid for the purpose of determining if
such interest exceeds the Maximum Lawful Amount.
(c) Excess Interest. At maturity (whether by acceleration or otherwise) or
on earlier final payment of the Obligations, Bank will compute the total
amount of interest that has been contracted for, charged or received by
Bank or payable by Borrower hereunder and compare such amount to the
Maximum Lawful Amount that could have been contracted for, charged or
received by Bank. If such computation reflects that the total amount of
interest that has been contracted for, charged or received by Bank or
payable by Borrower exceeds the Maximum Lawful Amount, then Bank shall
apply such excess to the reduction of the principal balance, such excess
shall be refunded to Borrower. This provision concerning the crediting or
refund of excess interest shall control and take precedence over all other
agreements between Borrower and Bank so that under no circumstances shall
the total interest contracted for, charged or received by Bank exceed the
Maximum Lawful Amount.
(d) Payments. Interest on Advances under Section is payable on the fifth
(5th) day of each month. Payments on the Term Loan are as set forth in
Section . Bank may debit any of Borrower's deposit accounts including
Account Number __________ for principal and interest payments or any
amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific time are considered received at the opening of
business on the next Business Day. When a payment is due on a day that is
not a Business Day, the payment is due the next Business Day and
additional fees or interest accrue.
(e) Recoupment. If at any time and from time to time Bank is prevented
from collecting the rate of interest and the fees specified in this
Agreement by applicable law or governmental
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regulation, Bank shall be entitled to recoup the amount it would have
otherwise been able to collect (the "Recoupment Amount") during such
period when the recoupment will not violate such applicable law or
regulation (the "Recoupment Period"). During each Recoupment Period,
Borrower shall continue to pay interest equal to the Maximum Lawful Rate
until there has been paid hereon, in addition to the interest at the
applicable rate specified herein during such Recoupment Period, an amount
equal to the Recoupment Amount. Interest collected by Bank during each
Recoupment Period shall first be applied to payment of current interest
due at the applicable rate specified in this Agreement and any remaining
interest collected shall be applied to the Recoupment Amount. When Bank
shall have recouped all of the Recoupment Amount, the interest rate
payable by Borrower shall revert to the applicable rate specified in this
Agreement. In no event, however, shall the interest rate charged hereunder
or under any other Loan Document ever exceed the Maximum Lawful Rate, nor
shall the amount of interest paid or charged hereunder exceed the Maximum
Lawful Amount, and in the event of any prepayment hereof, only that
portion of the Recoupment Amount which has been earned through the date of
prepayment shall be payable.
2.7 FEES.
Borrower will pay to Bank:
(a) Commitment Fee. A fully earned, non_refundable commitment fee of
$15,000.00 due on the Closing Date (of which $5,000 has been received by
Bank prior to the Closing Date); and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses incurred through and after the Closing Date) when due.
2.8 LIMITATION ON CREDIT EXTENSIONS.
The total principal amount of Credit Extensions outstanding at any given
time shall not exceed the following: (i) $1,000,000.00 until such time as the
Permitted Convertible Debt has been either fully converted to Subordinated Debt
or to equity (or any combination thereof) as provided in Section 6.8, (ii)
$1,179,000.00 following conversion as provided above and until the Nour-Omid
Debt is paid in full as provided in Section 6.8 and (iii) $1,400,000.00
thereafter.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires, all in form and substance satisfactory to Bank, including (without
limitation) the following:
(a) this Agreement;
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(b) such intellectual property security agreements and evidence of the
filing thereof as Bank may require;
(c) a certificate of the Secretary or of other applicable duly appointed
manager, officer, or other official of Borrower and any Guarantor (as well
as any constituent party of any Guarantor) with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement and
the other Loan Documents to which Borrower or any Guarantor is a party;
(d) financing statements from Borrower (Form UCC-1);
(e) one or more insurance certificates from Borrower;
(f) receipt by Bank of a satisfactory collateral audit, acceptable to Bank
in its sole discretion;
(g) a guaranty agreement executed and delivered by the Guarantor and in
form and substance satisfactory to Bank;
(h) evidence satisfactory to Bank that Borrower has received proceeds of
the issuance of not less than $500,000.00 in convertible Subordinated Debt
to Guarantor (in addition to convertible debt issued by Borrower through
August 31, 2002);
(i) a subordination agreement from the Guarantor, which subordination
agreement must be in form and substance satisfactory to Bank;
(j) evidence of payment in full (contemporaneous with the initial Credit
Extension) of all indebtedness owing to MRA Systems, Inc., d/b/a GE Access
and the release of all liens securing the same;
(k) evidence of the release or subordination of all liens securing
indebtedness owing to the Guarantor or others;
(l) payment of the Commitment Fee and the Bank Expenses then due; and
(m) such other documents, and completion of such other matters, as Bank
may reasonably deem necessary or appropriate, and Borrower shall have used
its commercially reasonable efforts to deliver such landlord lien waiver
as Bank may require.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt by Bank of any Payment/Advance Form; and
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(b) the representations and warranties in Section must be materially true
on the date of the Payment/Advance Form and on the effective date of each
Credit Extension (except to the extent they relate to an earlier date, in
which case, such representations and warranties shall continue to have
been true and accurate as of such date) and no Event of Default may have
occurred and be continuing, or result from the Credit Extension. Each
Credit Extension is Borrowers' representation and warranty on that date
that the representations and warranties in Section remain true (except to
the extent they relate to an earlier date, in which case, such
representation and warranties shall continue to have been true and
accurate as of such date).
(c) receipt by Bank of such other documents, and completion of such other
matters, as Bank may deem necessary or appropriate.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, the Bank will have a first priority security interest in the Collateral.
Bank may place a "hold" on any deposit account pledged as Collateral and Bank's
lien and security interest in the Collateral will continue until Borrower fully
satisfies its Obligations (other than Contingent Indemnification Obligations).
If the Agreement is terminated, Bank's lien and security interest in the
Collateral will continue until Borrower fully satisfies its Obligations (other
than the Contingent Indemnification Obligations).
Notwithstanding the foregoing, the security interest granted herein does
not extend to and the term "Collateral" does not include any license or contract
rights or any other property to the extent (i) the granting of a security
interest in it would be contrary to applicable law, or (ii) that such rights are
nonassignable, or the granting of a security interest therein is prohibited, by
their terms (but only to the extent the prohibition is enforceable under
applicable law, including, without limitation, Section 9.406(d) of the Code)
without the consent of the licensor or other party (but only to the extent such
consent has not been obtained). Except as disclosed on the Schedule, Borrower is
not a party to, nor is bound by, any license or other agreement that prohibits
or otherwise restricts Borrower from granting a security interest in Borrower's
interest in such license or agreement or any other property. Without prior
notice to Bank, Borrower shall not enter into, or become bound by, any such
license or agreement which is reasonably likely to have a material adverse
impact on Borrower's business or financial condition. Borrower shall take such
commercially reasonable steps as Bank requests to obtain the consent of, or
waiver by, any person whose consent or waiver is necessary for such licenses or
contract rights to be deemed "Collateral" and for Bank to have a security
interest in it that might otherwise be restricted or prohibited by law or by the
terms of any such license or agreement, whether now existing or entered into in
the future.
5 REPRESENTATIONS AND WARRANTIES
Except as set forth in the Schedule, Borrower represents and warrants as
follows:
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5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formations documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could reasonably be expected to cause a Material
Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Eligible Accounts shown on any Borrowing Base Certificate are, as of
the date of such Borrowing Base Certificate, bona fide, existing obligations,
and the service or property has been performed or delivered to the account
debtor or its agent for immediate shipment to and unconditional acceptance by
the account debtor. Borrower has no notice of any actual or imminent Insolvency
Proceeding of any account debtor whose accounts are an Eligible Account in the
most recent Borrowing Base Certificate delivered to Bank. All Inventory is in
all material respects of good and marketable quality, free from material
defects, except for Inventory for which adequate reserves have been made in
accordance with GAAP.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could reasonably be expected to cause a
Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower and any Subsidiary
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
Borrower is not left with unreasonably small capital after the
transactions in this Agreement and Borrower is able to pay its debts (including
trade debts) as they mature.
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5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could cause a Material Adverse Change. None of Borrower's or any Subsidiary's
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower's knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower
and each Subsidiary has timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes, except those being contested in
good faith with adequate reserves under GAAP. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted except where the
failure to do so could not reasonably be expected to cause a Material Adverse
Change.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following for so long as Bank has an
obligation to lend, or there are outstanding Obligations (other than Contingent
Indemnification Obligations): 6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so maintain or qualify could reasonably be
expected to have a material adverse effect on Borrower's business or operations.
Borrower will comply, and have each Subsidiary comply, with all laws, ordinances
and regulations to which it is subject, noncompliance with which could
reasonably be expected to have a material adverse effect on Borrower's business
or operations or cause a Material Adverse Change.
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6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's
consolidated operations during the period, in a form acceptable to Bank
and certified by a Responsible Officer; (ii) as soon as available, but no
later than 90 days after the end of Borrower's fiscal year, audited,
consolidated financial statements prepared under GAAP, consistently
applied, together with an unqualified opinion on the financial statements
from an independent certified public accounting firm acceptable to Bank;
(iii) within 5 days of filing, copies of all statements, reports and
notices made available to Borrower's security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8_K filed with
the Securities and Exchange Commission; (iv) a prompt report of any legal
actions pending or threatened against Borrower or any Subsidiary in which
an adverse result could reasonably be expected to result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; and (v) budgets,
sales projections, operating plans or other financial information Bank
requests.
(b) Within 20 days after the last day of each month, Borrower will deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in
the form of EXHIBIT C, with aged listings of accounts receivable and
accounts payable (by invoice date).
(c) By December 5, 2002 and, thereafter, within 30 days after the last day
of each month, and within 90 days after the end of each of Borrower's
fiscal years, Borrower will deliver to Bank with the monthly or annual
financial statements (as the case may be) a Compliance Certificate signed
by a Responsible Officer in the form of EXHIBIT D.
(d) Borrower will allow Bank to audit Borrower's Accounts at Borrower's
expense, provided, however, Borrower's obligation to pay or reimburse Bank
for audit fees and expenses shall be limited to $2,000 for each audit,
except that said limitation shall not apply if an Event of Default or an
event which, with notice or passage of time or both would constitute an
Event of Default, shall have occurred and be continuing. Such audits will
be conducted no more often than once every 6 months unless an Event of
Default has occurred and is continuing.
(e) On or before December 31, 2002, Borrower shall furnish Bank a copy of
Borrower's financial plan for 2003, which plan shall have been approved by
Borrower's board of directors and which plan must be acceptable to Bank in
all aspects.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects, except for Inventory for which adequate reserves have
been made in accordance with GAAP. Returns and allowances between Borrower and
its account debtors will follow Borrower's customary practices as they exist at
the Closing Date. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims that involve more than $50,000.
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6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP) and will deliver to Bank, on
demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower currently maintains insurance as described on the Schedule
("Current Insurance Coverage"). Borrower will keep its business and the
Collateral insured for at least such risks and in such amount, as the Current
Insurance Coverage. Insurance policies will be in a form and with companies that
are satisfactory to Bank. All property policies will have a lender's loss
payable endorsement showing Bank as a loss payee and all liability policies will
show the Bank as an additional insured and provide that the insurer must give
Bank at least 20 days notice before canceling its policy. At Bank's request,
Borrower will deliver certified copies of policies and evidence of all premium
payments. While an Event of Default is continuing, proceeds payable under any
policy will, at Bank's option, be payable to Bank on account of the Obligations;
provided however, so long as no Event of Default is continuing, all such
proceeds shall be retained by Borrower or released by Bank to Borrower to be
applied by Borrower, in its sole discretion, for the repair or replacement of
the property with respect to which the insurance proceeds were paid.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain all of its operating and investment accounts with
or through Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain at all times, unless otherwise noted:
TANGIBLE NET WORTH. A Tangible Net Worth plus Subordinated Debt of at
least ($750,000.00).
6.8 OTHER ACTIONS.
Borrower will cause all of the Permitted Convertible Debt to either be
converted to Subordinated Debt or to equity of Borrower (or any combination
thereof) on or before November 21, 2002, and shall pay the Nour-Omid Debt in
full on or before January 10, 2003 and, in each case, shall furnish Bank
evidence of such conversion or payment (as the case may be) within three (3)
Business Days following the consummation of such action.
6.9 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
Page 10
7 NEGATIVE COVENANTS
Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld, for so long as Bank has an
obligation to lend or there are any outstanding Obligations (other than
Contingent Indemnification Obligations):
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively a
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, except for Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn_out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or such Subsidiaries
or reasonably related thereto or have a change in a majority of its executive
officers compared to those holding offices as of the Closing Date, or have a
change in ownership of greater than forty percent (40%) or a change in ownership
that results in any person owning more than twenty percent (20%) of the
outstanding stock of Borrower on a common stock equivalent basis (in either
case, other than by the sale of Borrower's equity securities in a public
offering or to venture capital investors so long as Borrower identifies and
advises Bank of the venture capital investors prior to the closing of the
investment or to strategic investors of not more than twenty-five percent (25%)
of Borrower's equity securities to any one such investor, and so long as
Borrower identifies the strategic investor prior to closing of the investment).
Borrower will not, without at least thirty (30) days prior written notice to
Bank, change its sate of formation, relocate its chief executive office or add
any new offices or business locations where more than $50,000 of Collateral is
located.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) such transaction would not result in a decrease of more than
twenty-five (25%) of Tangible Net Worth. A Subsidiary may merge or consolidate
into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
Page 11
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to Bank's first priority security interest in
the Collateral granted herein, subject only to Permitted Liens.
7.6 INVESTMENTS; DISTRIBUTIONS.
Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, and except as permitted under
Section 7.3, or permit any of its Subsidiaries to do so, or pay any dividends or
make any distribution or payment or redeem, retire or purchase any capital
stock, provided that (i) Borrower may make dividend and distributions payable
solely in securities of Borrower, (ii) Borrower may convert any of its
convertible securities into other securities, (iii) Borrower may make Permitted
Investments, and (iv) Borrower may make any open market purchase or exchange of
Borrower's publicly traded equity securities, so long as a event of Default does
not exist at the time of such purchase or exchange and would not exist after
giving effect to such purchase or exchange.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with any
Affiliate, except transactions that are in the ordinary course of Borrower's
business, under fair and reasonable terms no less favorable to Borrower than
would be obtained in an arm's length transaction with a non-affiliated Person,
provided, however, that this Section 7.7 shall not prohibit Borrower from
entering into transactions with Affiliates which are Permitted Investments
7.8 SUBORDINATED DEBT AND OTHER DEBT.
Make or permit any payment on the Rose Debt, the Permitted Convertible
Debt, or any Subordinated Debt, except under the terms of the Subordinated Debt,
or amend any provision in any document relating to the Rose Debt (other than
interest rate reductions and extensions of the maturity), the Permitted
Convertible Debt, or the Subordinated Debt, without Bank's prior written
consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company" under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could have a material adverse effect on Borrower's business or operations or
cause a Material Adverse Change, or permit any of its Subsidiaries to do so.
Page 12
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
Borrower fails to pay any of the Obligations within 3 days after their due
date. During the additional period the failure to cure the default is not an
Event of Default (but no Credit Extensions will be made during the cure period);
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts in the 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional time, (of not more
than 30 days) to attempt to cure the default. During the additional period the
failure to cure the default is not an Event of Default (but no Credit Extensions
will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
Bank shall have determined that any of the following have occurred, and
shall have provided Borrower with written notice of such occurrence: (i) a
material impairment in the perfection or priority of the Bank's security
interest in the Collateral or in the value of such Collateral, other than normal
depreciation, which is not covered by adequate insurance; (ii) a material
adverse change in the business, operations, or condition (financial or
otherwise) of the Borrower; or (iii) a material impairment of the prospect of
repayment of any portion of the Obligations;
8.4 ATTACHMENT.
(i) Any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days; (ii) Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business; (iii) a judgment or other claim becomes a Lien on a material portion
of Borrower's assets; or (iv) a notice of lien, levy, or assessment is filed
against any of Borrower's assets by any government agency and not paid within 10
days after Borrower receives notice. These are not Events of Default if stayed
or if a bond is posted pending contest by Borrower (but no Credit Extensions
will be made during the cure period);
8.5 INSOLVENCY.
(i) Borrower is not able to pay its debts as they mature; (ii) Borrower
begins an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed
Page 13
within 30 days (but no Credit Extensions will be made before any Insolvency
Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change provided, however, that
the Event of Default under this Section 8.6 caused by the occurrence of a
default under such other agreement shall be cured or waived for purposes of this
Agreement upon Bank 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)
Bank 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 or any Loan
Document, 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
could in the judgment of the Bank be materially less advantageous to the
Borrower;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $100,000 is rendered
against Borrower and is not covered by adequate insurance as confirmed by Bank
and is unsatisfied and unstayed for 10 days (but no Credit Extensions will be
made before the judgment is stayed or satisfied);
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any communication delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
8.9 GUARANTY.
Any guaranty of any Obligations ceases for any reason to be in full force
or any Guarantor does not perform any obligation under any guaranty of the
Obligations, or any material misrepresentation or material misstatement exists
now or later in any warranty or representation in any guaranty of the
Obligations or in any certificate delivered to Bank in connection with the
guaranty, or any circumstance described in Sections 8.4, 8.5 or 8.7 occurs to
any Guarantor.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
Page 14
(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 or Section 8.9 occurs all Obligations
are immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit under
this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or reasonable
to protect its security interest in the Collateral. Borrower will assemble
the Collateral if Bank requests and make it available as Bank designates.
Bank may enter premises where the Collateral is located, take and maintain
possession of any part of the Collateral, and pay, purchase, contest, or
compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to
enter and occupy any of its premises, without charge, to exercise any of
Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any
name, trade secrets, trade names, Trademarks, service marks, and
advertising matter, or any similar property as it pertains to the
Collateral, in completing production of, advertising for sale, and selling
any Collateral and, in connection with Bank's exercise of its rights under
this Section, Borrower's rights under all licenses and all franchise
agreements inure to Bank's benefit; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
When an Event of Default occurs and continues, Borrower irrevocably
appoints Bank as its lawful attorney to: (i) endorse Borrower's name on any
checks or other forms of payment or security; (ii) sign Borrower's name on any
invoice or ▇▇▇▇ of lading for any Account or drafts against account debtors,
(iii) make, settle, and adjust all claims under Borrower's insurance policies;
(iv) settle and adjust disputes and claims about the Accounts directly with
account debtors, for amounts and on terms Bank determines reasonable; and (v)
transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid (other than Contingent Indemnification Obligations) and performed and
Bank's obligation to provide Credit Extensions terminates.
Page 15
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. When an Event of Default occurs and continues, Borrower
must collect all payments in trust for Bank and, if requested by Bank,
immediately deliver the payments to Bank in the form received from the account
debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices, it is not liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
to the Collateral; (c) any diminution in the value of the Collateral; or (d) any
act or default of any carrier, warehouseman, bailee, or other person. Borrower
bears all risk of loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of intent to accelerate, notice of acceleration, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guaranties held by Bank on which Borrower is liable.
10 NOTICES.
All notices or demands by any party to this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile at the addresses set forth below:
Page 16
If to Borrower:
EpicEdge, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank:
Silicon Valley Bank
9020 Capital of ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
A party may change its notice address by giving the other party written notice.
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
The Loan Documents shall be governed by, and construed in accordance with,
the internal laws of the State of Texas, without regard to principles of
conflicts of law, except that the provisions of Chapter 346 of the Texas Finance
Code shall not apply. Borrower and Bank hereby submit to the exclusive
jurisdiction of the state and Federal courts located in the County of ▇▇▇▇▇▇,
State of Texas. BORROWER AND BANK EACH HEREBY WAIVES THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF
THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights or Obligations under it without Bank's prior written consent which may be
granted or withheld in Bank's discretion. Bank has the right, without the
consent of or notice to Borrower, to sell, transfer, negotiate, or grant
participation in all
Page 17
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement, the Loan Documents or any related agreement; provided,
however, that if Bank grants any participation in Bank's rights and benefits
under this Agreement, prior to any Event of Default, Borrower shall only be
required to deal with bank with respect to the administration of the
transactions under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys' fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all Obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision. 12.5 AMENDMENTS IN WRITING,
INTEGRATION.
All amendments to this Agreement must be in writing signed by both Bank
and Borrower. This Agreement and the Loan Documents represent the entire
agreement about this subject matter, and supersedes prior or contemporaneous
negotiations or agreements. All prior or contemporaneous agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.
12.6 COUNTERPARTS.
To facilitate execution, this Agreement and the other Loan Documents may
be executed in any number of counterparts as may be convenient or necessary, and
it shall not be necessary that the signatures of all parties hereto or thereto
be contained on any one counterpart hereof or thereof. Additionally, the parties
hereto agree that for purposes of facilitating the execution of this Agreement
and the other Loan Documents, (a) the signature pages taken from separate
individually executed counterparts of this Agreement and the other Loan
Documents may be combined to form multiple fully executed counterparts and (b) a
facsimile transmission shall be deemed to be an original signature. All executed
counterparts of this Agreement and the other Loan Documents shall be deemed to
be originals, but all such counterparts taken together or collectively, as the
case may be, shall constitute one and the same agreement.
Page 18
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding other than
solely Contingent Indemnity Obligations. The obligations of Borrower in Section
12.2, to indemnify Bank will survive until all statutes of limitations for
actions that may be brought against Bank have run. Borrower upon five (5)
Business Days prior written notice to Bank may terminate this Agreement,
provided any and all Obligations under this Agreement and the Loan Documents
have been fully and indefeasibly paid, and provided, however, that Borrower's
obligations under Section 12.2 shall survive any such termination.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made: (i) to Bank's subsidiaries or affiliates
in connection with their present or prospective business relations with
Borrower; (ii) to prospective transferees or purchasers of any interest in the
Loans (provided, however, Bank shall use commercially reasonable efforts in
obtaining such prospective transferee or purchasers agreement of the terms of
this provision); (iii) as required by law, regulation, subpoena, or other order,
(iv) as required in connection with Bank's examination or audit; and (v) as Bank
considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank's possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (b) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled, whether or not a lawsuit is filed.
12.10 SAVINGS CLAUSE.
It is not the intention of any party to any of the Loan Documents to make
an agreement violative of the laws of any applicable jurisdiction relating to
usury. Regardless of any provision in any of the Loan Documents, Bank shall
never be entitled to receive, collect or apply, as interest on the Advances, any
amount which would cause the interest rate thereon to exceed the maximum lawful
rate. If Bank ever receives, collects or applies, as interest, any such excess,
such amount which would be excessive interest shall be deemed a partial
repayment of principal and treated hereunder as such; and if principal is paid
in full, any remaining excess shall be paid to Borrower. In determining whether
or not the interest paid or payable, under any specific contingency, would cause
the interest rate to exceed the maximum lawful rate, Borrower and Bank shall, to
the maximum extent permitted under applicable laws, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (ii)
exclude voluntary prepayments and the effect thereof, and (iii) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
Page 19
among all of the Advances throughout the entire contemplated term of the
Advances so that the interest rate is uniform throughout the entire term of the
Advances; provided that if the Advances are paid in full prior to the end of the
full contemplated term thereof, and if the interest received for the actual
period of existence thereof would cause the interest rate to exceed the maximum
lawful rate, Bank shall refund to Borrower the amount of such excess or credit
the amount of such excess against the total principal amount owing, and, in such
event, Bank shall not be subject to any penalties provided by any laws for
contracting for, charging or receiving interest in excess of the maximum lawful
rate. This Section 12.10 shall control every other provision of all agreements
among the parties to this Agreement pertaining to the transactions contemplated
by or contained in any of the Loan Documents.
13 DEFINITIONS
13.1 DEFINITIONS.
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"BORROWING BASE" is (i) 80% of Eligible Accounts as determined by Bank
from Borrower's most recent Borrowing Base Certificate; provided, however, that
Bank may, by giving Borrower thirty (30) days prior written notice, lower the
percentage of the Borrowing Base after performing an audit of Borrower's
Collateral.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"CASH MANAGEMENT SERVICES" are defined in Section 2.3.
Page 20
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Texas Business and Commerce Code.
"COLLATERAL" is the property described on Exhibit A.
"COMMITMENT FEE" is the fee described in Section 2.7(a).
"COMMITTED REVOLVING LINE" is a Credit Extension of up to $1,000,000.00.
"CONTINGENT INDEMNIFICATION OBLIGATIONS" are obligations of Borrower under
Section 12.2 for which no demand for indemnity or reimbursement has been made by
Bank.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co_made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"COPYRIGHTS" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CREDIT EXTENSION" is each Advance, the Term Loan and any other extension
of credit by Bank for Borrower's benefit.
"EFFECTIVE DATE" is the date this Agreement is executed by Bank as
reflected by the date below the signature of its representative on the signature
page hereof.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower 30 days prior
written notice. Unless Bank agrees otherwise in writing, Eligible Accounts will
not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have not
been paid within 90 days of invoice date;
Page 21
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that
exceed that percentage, unless Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States, unless such accounts are secured
by letters of credit acceptable to Bank and are approved by Bank in
writing;
(f) Accounts for which the account debtor is a federal entity or any
department, agency, or instrumentality except for Accounts of the United
States if the payee has assigned its payment rights to Bank and the
assignment has been acknowledged under the Assignment of Claims Act of
1940 (31 U.S.C. 3727);
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which goods
are consigned, sales guaranteed, sale or return, sale on approval, ▇▇▇▇
and hold, or other terms if account debtor's payment may be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"GUARANTOR" is any present or future guarantor of the Obligations,
including Edgewater Private Equity Fund III, L.P., a Delaware limited
partnership.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
Page 22
"INSOLVENCY PROCEEDINGS" are proceedings commenced by the filing of a
petition for relief by or against any Person under the United States Bankruptcy
Code, or any other bankruptcy or insolvency law (a "Bankruptcy Proceeding"),
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief, but excluding any action (other than a Bankruptcy
Proceeding) against a Person commenced by an assignee, trustee or other
representative of another Person or such Person's estate.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including amendments,
renewals, extensions, and all licenses or other rights to use and all
license fees and royalties from the use;
(b) Any trade secrets and any Intellectual Property Rights in computer
software and computer software products now or later existing, created,
acquired or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to ▇▇▇
and collect damages for use or infringement of the intellectual property
rights above;
All proceeds and products of the foregoing, including all insurance, indemnity
or warranty payments.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
Page 23
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"MATURITY DATE" is November 5, 2003.
"MAXIMUM LAWFUL RATE" is the maximum rate of interest and the term
"Maximum Lawful Amount" means the maximum amount of interest that is permissible
under applicable state or federal laws for the type of loan evidenced by the
Loan Documents. If the Maximum Lawful Rate is increased by statute or other
governmental action after the Closing Date, then the new Maximum Lawful Rate
will be applicable to the payments from the date of the effective date of the
rate change, unless otherwise prohibited by law.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank.
"PATENTS" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations_in_part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
(f) Subject to Section 6.8, the Permitted Convertible Debt, the Nour-Omid
Debt and the Rose Debt.
(g) Except as provided by the provisions of Section 7.8, extensions,
refinancings, modifications, amendments, and restatements of any items of
Permitted Indebtedness described in (a) through (d) above, provided that
the principal amount thereof is not increased and the terms thereof are
not modified in any manner which is more burdensome on the Borrower.
"NOUR-OMID DEBT" is the indebtedness evidenced by the Convertible Note
dated December 1, 2000 in favor of ▇▇▇▇▇▇ ▇▇▇▇-▇▇▇▇ in the original principal
amount of $500,000.00 as amended
Page 24
by the Settlement Agreement, dated April 15, 2002, in Case No. BC261910 in Los
Angeles Superior Court.
"PERMITTED CONVERTIBLE DEBT" means all indebtedness owing by Borrower to
any one or more of Edgewater Private Equity Fund III, L.P., ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, or ▇▇▇▇▇ T.I.M.E. Fund, L.P.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
(b) Investments expressly permitted by this Agreement;
(c) Acquisitions permitted under Section 7.3 of this Agreement;
(d) Investments permitted by Borrower's investment policy, as adopted by
Borrower's board of directors and approved by Bank;
(e) Strategic Investments in the ordinary course of Borrower's business in
customers, vendors, suppliers and the 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 $200,000 per year;
(f) Investments (including debt obligations) received in connection with
the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with,
customers or suppliers, arising in the ordinary course of business, it
being understood that such investments are part of the Collateral and
shall be promptly delivered to Bank with any necessary endorsement and
further that such investments shall not under any circumstances be
included in any Borrowing Base Certificate.
(g) Investments consisting of notes receivable of, or prepaid royalties
and other credit extension, to customers and suppliers who are Affiliates,
in the ordinary course of business, it being understood that any such
investments consisting of notes receivables are part of the Collateral and
shall be promptly delivered to bank with any necessary endorsement and
further that such investments shall not under any circumstances be
included in any borrowing Base Certificate.
(h) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year
from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard &
Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, Inc., and (iii) Bank's
certificates of deposit issued maturing no more than 1 year after issue.
Page 25
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for
which Borrower maintains adequate reserves on its Books;
(c) Liens (i) on goods and related software acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of such goods
and related software and associated soft costs, or (ii) existing on
equipment and related software when acquired, if the Lien is confined to
the property and improvements and the Proceeds of the subject property;
(d) 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;
(e) Liens on ▇▇▇▇▇▇▇ money deposits required under a letter of intent or
purchase agreement which are in connection with transactions permitted by
this Agreement and are consent to by Bank, provided such funds are at all
times kept in a segregated escrow account;
(f) Statutory Liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, and other Persons imposed without account of such
parties and which are being contested in good faith and for which Borrower
maintains adequate reserves on its books and landlord liens (provided
Borrower has used commercially reasonable efforts to obtain landlord lien
waivers as required by the provisions of Section 3.1(m) and Borrower is in
compliance with its obligations under the leases to which such landlord
liens relate);
(g) Liens to secure payment of worker's compensation, employment
insurance, old-age pensions, social security and other like obligations
incurred in the ordinary course of business;
(h) 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;
(i) Liens arising in the ordinary course of business which constitute
rights of offset of a customary nature;
(j) Liens on escrowed cash representing a portion of the proceeds of sales
of Transfers permitted by this Agreement, established to satisfy
contingent post closing obligations that Borrower owes (including
earn-outs, indemnities and working capital adjustments);
(k) Leases or subleases granted in the ordinary course of Borrower's
business, including in connection with Borrower's leased premises or
leased property;
(l) Liens in favor of Bank;
Page 26
(m) Non-exclusive licenses and non-exclusive sublicenses granted by
Borrower in the ordinary course of its business and not otherwise
prohibited by this Agreement;
(n) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by the Liens described in (a) through (m), but any
extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the
indebtedness may not increase; and
(o) Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Sections 8.4 or 8.8 if they
have no priority over any of Bank's security interests.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"PREPAYMENT FEE" is a fee on any portion of the Obligations with a fixed
interest rate (the "Fixed Obligations") paid before the payment due date. "Base
Interest Rate" means Bank's initial cost of funding the Fixed Obligations. The
Prepayment Fee is calculated as follows: First, Bank determines a "Current
Market Rate" based on what the Bank would receive if it loaned the remaining
amount on the prepayment date in a wholesale funding market matching maturity,
remaining principal and interest amounts and principal and interest payment
dates (the aggregate payments received are the "Current Market Rate Amount").
Bank may select any wholesale funding market rate as the Current Market Rate.
Second, Bank will take the prepayment amount and calculate the present value of
each remaining principal and interest payment which, without prepayment, the
Bank would have received during the term of the Fixed Obligations using the Base
Interest Rate. The sum of the present value calculations is the "▇▇▇▇ to Market
Amount." Third, the Bank will subtract the ▇▇▇▇ to Market Amount from the
Current Market Rate Amount. Any amount greater than zero is the Prepayment Fee.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is November 5, 2003.
"ROSE DEBT" is the indebtedness evidenced by the Convertible Note dated
November 1, 2000, in favor of ▇▇▇▇ ▇. ▇▇▇▇ in the original principal amount of
$400,000.00, as amended, and by the Convertible Note dated November 7, 2000 in
favor of ▇▇▇▇ ▇. ▇▇▇▇ in the original principal amount of $500,000.00, as
amended.
"SCHEDULE" is any attached schedule of exceptions.
Page 27
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.
"SUBSIDIARY" is for any Person, joint venture, or any other business
entity of which more than 50% of the voting stock or other equity interests is
owned or controlled, directly or indirectly, by the Person or one or more
Affiliates of the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities. For purposes hereof, Total
Liabilities shall be determined without inclusion of the Permitted Convertible
Debt, the Nour-Omid Debt, and the Rose Debt.
"TERM LOAN" a loan of $400,000.00.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"TRADEMARKS" are trademark and service ▇▇▇▇ rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Borrower connected with the trademarks.
14 NOTICE OF FINAL AGREEMENT.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Page 28
BORROWER:
EPICEDGE, INC., a Texas corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
Title: COO/CFO
----------------
Date: 11/6/02
------------------------------
SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Title: VP
----------------
Date: 11/6/02
------------------------------
Page 29
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know_how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
EXHIBIT B
SILICON VALLEY BANK
LOAN PAYMENT/ ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.M. PST
FAX TO: ▇▇▇.▇▇▇.▇▇▇▇ Date:
|_| LOAN PAYMENT:
EPICEDGE, INC.
Client Name (Borrower)
From Account # ______________________ To Account #_______________________
(Deposit Account #) (Loan Account #)
Principal $______________________ and/or Interest $________________________
All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects to and on the date of
the telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date:
AUTHORIZED SIGNATURE:________________________________________________________ Phone Number: ____________________
|_| LOAN ADVANCE:
COMPLETE OUTGOING WIRE REQUEST SECTION BELOW IF ALL OR A PORTION OF THE FUNDS
FROM THIS LOAN ADVANCE ARE FOR AN OUTGOING WIRE.
From Account # _______________________ To Account # _____________________
(Loan Account #) (Deposit Account #)
Amount of Advance $ ___________________
All Borrower's representation and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects to and on the date of
the telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date:
AUTHORIZED SIGNATURE:________________________________________________________ Phone Number: ____________________
OUTGOING WIRE REQUEST
COMPLETE ONLY IF ALL OR A PORTION OF FUNDS FROM THE LOAN ADVANCE ABOVE ARE TO BE
WIRED.
Deadline for same day processing is 12:00 p.m., PST
Beneficiary Name: ____________________________________ Amount of Wire: $ ________________________
Beneficiary Bank: ____________________________________ Account Number: ___________________________
City and State: ______________________________________
Beneficiary Bank Transit (ABA) #: __ __ __ __ __ __ Beneficiary Bank Code (Swift, Sort, Chip, etc.):____________
(FOR INTERNATIONAL WIRE ONLY)
Intermediary Bank: ___________________________________ Transit (ABA) #: __________________________
For Further Credit to: ___________________________________________________________________________________________
Special Instruction: _____________________________________________________________________________________________
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in
accordance with and subject to the terms and conditions set forth in the agreement(s) covering funds transfer
service(s), which agreement(s) were previously received and executed by me (us).
Authorized Signature: __________________________ 2nd Signature (If Required): _______________________________
Print Name/Title: ______________________________ Print Name/Title: __________________________________________
Telephone # ____________________________________ Telephone # ________________________________________________
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: EpicEdge, Inc. Lender: Silicon Valley Bank
Commitment Amount: $1,000,000.00
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _____ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $__________
5. Balance of 50% over 90 day accounts $__________
6. Credit balances over 90 days $__________
7. Concentration Limits $__________
8. Foreign Accounts $__________
9. Governmental Accounts
$__________
10. Contra Accounts $__________
11. Promotion or Demo Accounts $__________
12. Intercompany/Employee Accounts $__________
13. Other (please explain on reverse) $__________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________
15. Eligible Accounts (#3 minus #14) $__________
16. LOAN VALUE OF ACCOUNTS ( ____% of #15) $__________
BALANCES
17. Maximum Loan Amount $__________
18. Total Funds Available - Lesser of #17 or (#16) $__________
19. Present balance owing on Line of Credit $__________
20. Outstanding under Sublimits ( ) $__________
21. RESERVE POSITION (#18 minus #19 and #20) $__________
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS:
Bank Use Only
Rec'd By:_________________
Authorized ▇▇▇▇▇▇
Date: ____________________
Verified:_________________
Authorized ▇▇▇▇▇▇
Date: ____________________
By: ___________________________
Authorized Signer
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: EPICEDGE, INC.
The undersigned authorized officer of ____________________ certifies that
under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending _______________ with all required covenants except as noted
below and (ii) all representations and warranties in the Agreement are true and
correct in all material respects on this date. Attached are the required
documents supporting the certification. The Officer certifies that these are
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer acknowledges that no borrowings
may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
10_Q, 10_K and 8-K Within 5 days after filing with SEC Yes No
A/R & A/P Agings Monthly within 20 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain on a Monthly Basis:
Minimum Tangible Net Worth ($750,000.00) $________ Yes No
plus Subordinated Debt
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Sincerely, Received by:
----------------------
-------------------------------------------- AUTHORIZED SIGNER
SIGNATURE
Date:
-------------------------------------------- -----------------------------
TITLE
Verified:
-------------------------------------------- -------------------------
DATE AUTHORIZED SIGNER
Date:
-----------------------------
Compliance Status: Yes No
SCHEDULE TO LOAN AND SECURITY AGREEMENT
BETWEEN EPICEDGE, INC. AND
SILICON VALLEY BANK
The following is the Schedule referenced in the Loan and Security
Agreement, dated as of November 5, 2002, by and between the EpicEdge, Inc. (the
"Borrower") and Silicon Valley Bank (the "Agreement"). Capitalized terms used in
this Schedule, unless otherwise specified, shall have the same meaning given
them in the Agreement. The section references used herein are to the particular
subsections in Sections 5 and 7 of the Agreement. However, because a particular
disclosure may apply to multiple sections of the Agreement, all information
disclosed herein shall be deemed disclosed under and incorporated into any
section herein where such disclosure would be applicable. This schedule is
qualified in its entirety by reference to the Agreement and is not intended to
constitute any representation or warranty of the Borrower except as and to the
extent expressly provided in the Agreement.
SCHEDULE 5.1 QUALIFICATION TO DO BUSINESS AND NO DEFAULT.
Borrower is not in good standing in the states of Massachusetts, Missouri
and Tennessee. However, Borrower no longer has offices in such states. The
failure to be in good standing and the withdrawal of Borrower's qualification in
such states shall not have a Material Adverse Effect. Borrower has been
administratively dissolved in the state of Kentucky. However, Borrower no longer
does business in Kentucky and has paid all due taxes in such state and has been
advised by such state that an administrative dissolution is effectively
equivalent to a voluntary withdrawal from the state. Borrower conducts some
business or its employees commute to the following states in which Borrower not
currently qualified to do business: Alaska, Indiana, Wisconsin, and Wyoming. The
failure to be in qualified to do business in such states shall not have a
Material Adverse Effect on Borrower.
Borrower may be in default of or may have breached covenants or terms in
the following agreements and/or instruments, as indicated below:
Oracle Corporation sent Borrower a termination and settlement agreement
dated September 10, 2002, in connection with the settlement regarding the Oracle
License Agreement between Borrower and Oracle Corporation pursuant to which
Borrower paid the amount set forth in such settlement agreement and returned the
software to Oracle Corporation, of which Oracle Corporation acknowledged receipt
on October 16, 2002. Borrower is awaiting the counter_signed payoff letter sent
September 23, 2002 by Borrower to Oracle Corporation.
Borrower is in breach of the MRA Systems, Inc., d/b/a GE Access
Installment Agreement dated January 28, 2002, which requires Borrower to pay the
remaining outstanding balance of $864,427.56 in full by October 16, 2002. GE
Access delivered to Borrower a payoff letter dated October 31, 2002 giving
Borrower a 1% discount if Borrower pays $855,783.28 by November 15, 2002.
Borrower intends to pay this obligation upon the closing of the initial Credit
Extension.
Page 1
SCHEDULE 5.2. EXISTING LIENS AND EXISTING INDEBTEDNESS (SECTION 7.4).
MRA Systems, Inc. (d/b/a Access Graphics or GE Access) has a security
interest in substantially all assets of Borrower pursuant to the MRA Systems,
Inc., d/b/a GE Access Installment Agreement dated January 28, 2002 as evidenced
by the financing statement filed on March 29, 2001 as Filing Number 01_00045612,
as amended by the financing statement amendment filed on July 5, 2002 as Filing
Number 02_00361086.
Borrower has issued Substitute Convertible Secured Promissory Notes to
each of Edgewater, ▇▇▇▇▇/T.I.M.E., ▇▇▇▇▇ and DeJoria for respective principal
amounts of $3,100,000, $400,000, $250,000 and $400,000. In connection with such
debt financings, Borrower granted security interests in substantially all of its
assets in favor of: (i) Edgewater as evidenced by the financing statement filed
on February 22, 2002 as Filing Number 02_0020154892; and (ii) Edgewater, as
agent, as evidenced by the financing statement filed on April 18, 2002 as Filing
Number 02_0026768314.
SCHEDULE 5.3 LITIGATION.
Cause No: 2001_28197; EpicEdge, Inc. v. Reliant Energy; In the 133rd
Judicial District Court of ▇▇▇▇▇▇ County, Texas.
This claim is for breach of contract. Borrower filed suit on May 31, 2001.
Borrower seeks specified damages in the amount of $973,804 plus costs and
attorneys fees. Reliant Energy filed an answer and a request for disclosure on
July 6, 2001. Borrower filed a request for disclosure and a response to Reliant
Energy's request for disclosure on August 6, 2001. Reliant Energy filed a
counterclaim for an unspecified amount of damages on August 17, 2001 for breach
of contract. Depositions were taken and Reliant Energy has had seven requests
for production. On October 28, 2002, Reliant Resources, Inc. sent a demand
letter in connection with this cause stating that Borrower breached a written
contract with Reliant Resources, Inc. for the delivery of a system and demanding
payment of $675,000 plus expenses. Borrower is currently waiting on a ruling on
a request for continuance.
Cause No.: GN003346; Trimbuilt Construction, Inc. vs. EpicEdge, Inc.; In
the 353rd Judicial District Court of ▇▇▇▇▇▇ County, Texas.
This claim involves a claim for restocking inventory. Trimbuilt
Construction, Inc. ("Trimbuilt") filed suit on November 20, 2000. Trimbuilt
claims specified damages in the amount of $39,000.00 plus costs and attorneys
fees. Borrower filed an answer generally denying Trimbuilt's allegations on
November 30, 2000. This matter is not presently set for trial.
Cause No. 257358; Avnet Hallmark Computer Mktg. vs. EpicEdge, Inc.; in
County Court at Law No. 1 of ▇▇▇▇▇▇ County, Texas
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This claim is for unpaid invoices for the purchase of computer products
and equipment. Avnet Hallmark Computer Mktg. ("Avnet") filed suit on June 13,
2001. Avnet claims specified damages in the amount of $22,869.22 plus costs and
attorney's fees. Borrower filed an answer generally denying Avnet's allegations
on August 3, 2001. This matter is not presently set for trial. Avnet offered
settlement of case if EpicEdge pays $15,000.
Cause Number GN 103836 in the District Court of ▇▇▇▇▇▇ County, Texas,
201st Judicial District ▇▇▇▇▇ ▇▇▇▇▇▇ v. EpicEdge, Inc., ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇, P.C.
Borrower has been sued in ▇▇▇▇▇▇ County Texas State District Court by a
former employee who alleges Borrower wrongfully prohibited him from selling
stock. Damages alleged are $2,715,630. ▇▇. ▇▇▇▇▇▇ claims that through the acts
and/or omissions of the named parties, the named parties failed to give correct
and truthful information to ▇▇. ▇▇▇▇▇▇ and his agent Fidelity Investments in an
attempt to sell his stock.
Etalentworks
Claim involves overdue payment for services rendered. Borrower owes
$17,000. Etalentworks' counsel has proposed that Etalentworks accept 30% from
Borrower as settlement in full. Borrower offered $4,000 in settlement and is
awaiting a response from Etalentworks' counsel.
SEC Investigation
Borrower was notified by the SEC Staff that the SEC is conducting an
investigation into (1) the trading activity of certain individuals and entities
in Borrower's securities and the securities of other companies during the period
1999 and 2000, and (2) certain actions of Borrower during that same period.
Borrower has cooperated and intends to continue to cooperate with the SEC to the
extent it requests information. In July 2002, Borrower was informed by the SEC
staff (the "Staff") that the Staff intended to recommend bringing a civil action
seeking civil penalties and injunctive relief against Borrower for violations of
the federal securities laws. Borrower does not agree with the Staff's position
and has requested that the Staff reconsider its recommendation. The outcome of
any SEC action with respect to Borrower is uncertain at this time. If the SEC
seeks injunctive relief and civil penalties against Borrower as remedies, such
remedies could have a material adverse effect on Borrower and its operations or
financial condition. The status of the SEC's investigation of other individuals
and entities is not known at this time.
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