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Exhibit 5.1
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ELECTRONIC DESIGNS, INC.
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
Page
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1. DEFINITIONS AND CONSTRUCTION......................................... 1
1.1 Definitions.................................................... 1
1.2 Accounting Terms............................................... 6
2. LOAN AND TERMS OF PAYMENT............................................ 6
2.1 Advances....................................................... 6
2.2 Overadvances................................................... 8
2.3 Interest Rates, Payments, and Calculations..................... 8
2.4 Crediting Payments............................................. 9
2.5 Fees........................................................... 9
2.6 Additional Costs............................................... 9
2.7 Term........................................................... 10
3. CONDITIONS OF LOANS.................................................. 10
3.1 Conditions Precedent to Initial Advance........................ 10
3.2 Conditions Precedent to all Advances........................... 10
4. CREATION OF SECURITY INTEREST........................................ 11
4.1 Grant of Security Interest..................................... 11
4.2 Delivery of Additional Documentation Required.................. 11
4.3 Right to Inspect............................................... 11
5. REPRESENTATIONS AND WARRANTIES....................................... 11
5.1 Due Organization and Qualification............................. 11
5.2 Due Authorization; No Conflict................................. 11
5.3 No Prior Encumbrances.......................................... 11
5.4 Bona Fide Eligible Accounts.................................... 11
5.5 Merchantable Inventory......................................... 12
5.6 Name; Location of Chief Executive Office....................... 12
5.7 Litigation..................................................... 12
5.8 No Material Adverse Change in Financial Statements............. 12
5.9 Solvency....................................................... 12
5.10 Regulatory Compliance.......................................... 12
5.11 Environmental Condition........................................ 12
5.12 Taxes.......................................................... 12
5.13 Subsidiaries................................................... 13
5.14 Government Consents............................................ 13
5.15 Full Disclosure................................................ 13
6. AFFIRMATIVE COVENANTS................................................ 13
6.1 Good Standing.................................................. 13
6.2 Government Compliance.......................................... 13
6.3 Financial Statements, Reports, Certificates.................... 13
6.4 Inventory; Returns............................................. 14
6.5 Taxes.......................................................... 14
6.6 Insurance...................................................... 14
6.7 Principal Depository........................................... 14
6.8 Quick Ratio.................................................... 14
6.9 Debt Service Coverage.......................................... 15
6.10 Debt-Tangible Net Worth Ratio.................................. 15
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6.11 Tangible Net Worth............................................. 15
6.12 Profitability.................................................. 15
6.13 Registration of Intellectual Property Rights................... 15
6.14 Further Assurances............................................. 16
7. NEGATIVE COVENANTS................................................... 16
7.1 Dispositions................................................... 16
7.2 Change in Business............................................. 16
7.3 Mergers or Acquisitions........................................ 16
7.4 Indebtedness................................................... 16
7.5 Encumbrances................................................... 16
7.6 Distributions.................................................. 16
7.7 Investments.................................................... 16
7.8 Transactions with Affiliates................................... 17
7.9 Subordinated Debt.............................................. 17
7.10 Inventory...................................................... 17
7.11 Compliance..................................................... 17
8. EVENTS OF DEFAULT.................................................... 17
8.1 Payment Default................................................ 17
8.2 Covenant Default............................................... 17
8.3 Material Adverse Change........................................ 18
8.4 Attachment..................................................... 18
8.5 Insolvency..................................................... 18
8.6 Other Agreements............................................... 18
8.7 Subordinated Debt.............................................. 18
8.8 Judgments...................................................... 18
8.9 Misrepresentations............................................. 18
9. BANK'S RIGHTS AND REMEDIES........................................... 18
9.1 Rights and Remedies............................................ 18
9.2 Power of Attorney.............................................. 19
9.3 Accounts Collection............................................ 20
9.4 Bank Expenses.................................................. 20
9.5 Remedies Cumulative............................................ 20
10. WAIVERS; INDEMNIFICATION............................................. 20
10.1 Demand; Protest................................................ 20
10.2 Bank's Liability for Collateral................................ 20
10.3 Indemnification................................................ 20
11. NOTICES.............................................................. 21
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER........................... 21
13. GENERAL PROVISIONS................................................... 21
13.1 Successors and Assigns......................................... 21
13.2 Time of Essence................................................ 22
13.3 Severability of Provisions..................................... 22
13.4 Amendments in Writing, Integration............................. 22
13.5 Counterparts................................................... 22
13.6 Survival....................................................... 22
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This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into as
of October 23, 1996, by and between SILICON VALLEY BANK ("Bank"), and ELECTRONIC
DESIGNS, INC. a Delaware corporation ("Borrower").
RECITALS
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Electronic Designs, Inc., a Massachusetts corporation, and Crystallume, a
California corporation, entered into a Loan and Security Agreement with Bank
dated as of October 10, 1995. In a restructuring, those corporations ultimately
were merged into Borrower. Borrower wishes to continue to obtain credit from
Bank, and Bank wishes to continue to extend credit to Borrower, on the terms set
forth in this Agreement.
AGREEMENT
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The parties agree as follows:
New Paragraph Definition 1. DEFINITIONS AND CONSTRUCTION
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DEFINITIONS. As used in this Agreement, the following terms shall have the
following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a cash advance under the
Revolving Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Borrower's Books" means all of a Borrower's books and records
including: ledgers; records concerning such Borrower's assets or liabilities,
the Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1
hereof.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California or the Commonwealth of
Massachusetts are authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property of Borrower described on
EXHIBIT A attached hereto.
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"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at
the end of a given day.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4 (specifically
including Accounts owing by accounts debtors with a principal place of business
outside the United States); PROVIDED, that standards of eligibility may be fixed
and revised from time to time by Bank in Bank's reasonable judgment and upon
notification thereof to Borrower in accordance with the provisions hereof.
Unless otherwise agreed to by Bank, Eligible Accounts shall not include the
following:
Accounts that the account debtor has failed to pay within ninety (90)
days of invoice date;
Accounts with respect to an account debtor, fifty percent (50%) of whose
Accounts the account debtor has failed to pay within ninety (90) days of invoice
date;
Accounts with respect to which the account debtor is an officer,
employee, or agent of Borrower;
Accounts with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, ▇▇▇▇ and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
Accounts with respect to which the account debtor is an Affiliate of
Borrower;
Accounts with respect to which the account debtor is the United States or
any department, agency, or instrumentality of the United States;
Accounts with respect to which Borrower is liable to the account debtor
for goods sold or services rendered by the account debtor to such Borrower, but
only to the extent of any amounts owing to the account debtor against amounts
owed to such Borrower;
Accounts with respect to an account debtor, including Subsidiaries and
Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%)
of all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank;
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Accounts with respect to which the account debtor disputes liability or
makes any claim with respect thereto as to which Bank believes, in its sole
discretion, that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
Accounts the collection of which Bank reasonably determines to be
doubtful.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Availability Date" means July 23, 1997.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means the fourth anniversary of the
Equipment Availability Date.
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"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Original Agreement" means the Loan and Security Agreement
between Bank and Electronic Designs, Inc., a Massachusetts corporation, and
Crystallume, a California corporation.
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay to
Bank pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower or the Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Indebtedness secured by a Lien that is a
"Permitted Lien" under clause (c) of the term "Permitted Liens," provided the
amount of such Indebtedness does not exceed the lesser of the cost or the fair
market value of the equipment acquired with the proceeds of such Indebtedness;
(d) Capital leases entered into in each fiscal year
in an amount not to exceed One Million Dollars ($1,000,000) per fiscal year
(exclusive of Indebtedness permitted under clause (b) of "Permitted
Indebtedness;"
(e) Operating leases;
(f) Subordinated Debt; and
(g) Indebtedness to trade creditors incurred in the
ordinary course of business.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank.
"Permitted Liens" means the following:
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(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, PROVIDED the same have no priority over any of
Bank's security interests;
(c) Liens (i) upon or in any equipment acquired,
leased or held by a Borrower or any of its Subsidiaries to secure the purchase
price of such equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such equipment, or (ii) existing on such equipment
at the time of its acquisition, PROVIDED that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment;
(d) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) through (c) above, PROVIDED that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount
thereof shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the Chief Financial Officer and the Controller of a Borrower.
"Revolving Maturity Date" means the day before the first
anniversary of the Closing Date.
"Revolving Facility" means the facility under which Borrower
may request Bank to issue cash advances in a principal amount not to exceed Six
Million Dollars ($6,000,000), as specified in Section 2.1 hereof.
"Schedule" means the schedule of exceptions attached
hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by such Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries MINUS, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense,
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patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, AND (ii) Total Liabilities.
"Term Amount" means the amount outstanding on the date of
measurement under the Term Loan.
"Term Loan" means the loan made by Bank to Borrower under
Section 2.1.2.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP and all calculations made hereunder
shall be made in accordance with GAAP. When used herein, the terms "financial
statements" shall include the notes and schedules thereto.
LOAN AND TERMS OF PAYMENT
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ADVANCES. Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make Advances to Borrower in an aggregate amount not to exceed
the lesser of (i) the maximum amount of the Revolving Facility MINUS the face
amount of all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) or (ii) the Borrowing Base MINUS the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit). For purposes of this Agreement, "Borrowing Base" shall mean an amount
equal to (i) seventy-five percent (75%) of Eligible Accounts plus (ii) the
lesser of twenty percent (20%) of the value of Borrower's Inventory (valued at
the lower of cost or wholesale fair market value) or One Million Two Hundred
Thousand Dollars ($1,200,000) MINUS the Term Amount. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this Section 2.1 may
be repaid and reborrowed at any time prior to the Revolving Maturity Date.
Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Massachusetts time,
on the Business Day that the Advance is to be made. Each such notification shall
be promptly confirmed by a Payment/Advance Form in substantially the form of
EXHIBIT B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless
for any damages or loss suffered by Bank as a result of such reliance. Bank will
credit the amount of Advances made under this Section 2.1 to any Borrower's
deposit account.
The Revolving Facility shall terminate on the Revolving Maturity Date, at
which time all outstanding Advances under this Section 2.1 shall be immediately
due and payable.
Letters of Credit.
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Subject to the terms and conditions of this Agreement, Bank agrees to
issue or cause to be issued letters of credit for the account of Borrower in an
aggregate face amount not to exceed (i) the lesser of the maximum amount of the
Revolving Facility or the Borrowing Base MINUS (ii) the then outstanding
principal balance of the Advances and the face amount of all outstanding Letters
of Credit; provided that the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) shall not in any case
exceed Five Million Dollars ($5,000,000). Each such letter of credit shall have
an expiry date no later than the Revolving Maturity Date. All such letters of
credit shall be, in form and substance, acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's form of
application and letter of credit agreement. All amounts actually paid by Bank in
respect of a letter of credit shall, when paid, constitute an Advance under this
Agreement.
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The obligation of Borrower to immediately reimburse Bank for drawings made
under Letters of Credit shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement and
such Letters of Credit, under all circumstances whatsoever. Borrower shall
indemnify, defend and hold Bank harmless from any loss, cost, expense or
liability, including, without limitation, reasonable attorneys' fees, arising
out of or in connection with any letters of credit.
Borrower may request that Bank issue a letter of credit payable in a
currency other than United States Dollars. If a demand for payment is made under
any such letter of credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer to the country
of which it is the currency.
Upon the issuance of any letter of credit payable in a currency other than
United States Dollars, Bank shall create a reserve under the Revolving Facility
for letters of credit against fluctuations in currency exchange rates, in an
amount equal to twenty percent (20%) of the face amount of such letter of
credit. The amount of such reserve may be amended by Bank from time to time to
account for fluctuations in the exchange rate. The availability of funds under
the Revolving Facility shall be reduced by the amount of such reserve for so
long as such letter of credit remains outstanding.
TERM LOAN. Borrower confirms that, as of the Closing Date, the Term Amount
is $_________ . Interest shall continue to accrue on the outstanding balance of
the Term Amount from the Closing Date at the rate specified in Section 2.3(a),
and shall be payable monthly on the thirtieth (30th) day of each month (or the
last day of each month that has less than 30 days). In addition to monthly
interest payments, the Term Amount will be payable in forty-eight (48) equal
monthly installments on the thirtieth day of each month (or the last day of each
month that has less than 30 days), until the principal amount of the Term Loan
has been repaid in full. The entire outstanding principal amount of the Term
Loan and all accrued but unpaid interest shall be due and payable on the fourth
anniversary of the Closing Date. Borrower may prepay all or any part of the Term
Loan without premium or penalty.
2.1.3 Equipment Advances.
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(a) At any time from the date hereof through the
Equipment Availability Date, Borrower may from time to time request advances
(each an "Equipment Advance" and, collectively, the "Equipment Advances") from
Bank in an aggregate principal amount of up to One Million Five Hundred Thousand
Dollars ($1,500,000). The Equipment Advances shall be used to purchase Equipment
approved from time to time by Bank (which Borrower shall, in any case, have
purchased after October 30, 1995) and shall not exceed eighty percent (80%) of
the cost of such Equipment, excluding installation expense, freight discounts,
warranty charges and taxes.
(b) Interest shall accrue from the date of each
Equipment Advance at the rate specified in Section 2.3(a), and shall be payable
on the thirtieth day of each month thereafter (or the last calendar day of any
month that has less than thirty (30) days) through the Equipment Availability
Date. The Equipment Advance or Equipment Advances that are outstanding on the
Equipment Availability Date will be payable in forty eight (48) equal monthly
installments of principal, plus accrued interest, beginning on August 30, 1997.
(c) When Borrower desires to obtain an Equipment
Advance, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission received no later than 3:00 p.m. Massachusetts time one
(1) Business Day before the day on which the Equipment Advance is to be made.
Such notice shall be in substantially the form of EXHIBIT B. The notice shall be
signed by a Responsible Officer and include a copy of the invoice for the
Equipment to be financed.
OVERADVANCES. If, at any time or for any reason, the amount of Obligations
owed by Borrower to Bank pursuant to Section 2.1 and Section 2.1.1 of this
Agreement is greater than the lesser of (i) the maximum amount of
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the Revolving Facility or (ii) the Borrowing Base, Borrower shall immediately
pay to Bank, in cash, the amount of such excess.
Interest Rates, Payments, and Calculations.
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INTEREST RATE. Except as set forth in Section 2.3(b), any Advances shall
bear interest, on the average Daily Balance, at a rate equal to One Half of One
(0.5) Percentage Point above the Prime Rate. Except as set forth in Section
2.3(b), the Term Loan shall bear interest at a rate equal to One Half of One
(0.5) Percentage Point above the Prime Rate. Except as set forth in Section
2.3(b), any Equipment Advances shall bear interest at a rate equal to One (1.0)
Percentage Point above the Prime Rate.
DEFAULT RATE. All Obligations shall bear interest, from and after the
occurrence of an Event of Default, at a rate equal to five (5) percentage points
above the interest rate applicable immediately prior to the occurrence of the
Event of Default.
PAYMENTS. Interest on the Advances and the Term Loan shall be due and
payable on the thirtieth calendar day of each month during the term hereof, or
the last calendar day of any month that has less than thirty (30) days. Bank
shall, at its option, charge such interest, all Bank Expenses, and all Periodic
Payments against any of Borrower's deposit accounts or against the Revolving
Facility, in which case those amounts shall thereafter accrue interest at the
rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
COMPUTATION. In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
CREDITING PAYMENTS. Prior to the occurrence of an Event of Default, Bank
shall credit a wire transfer of funds, check or other item of payment to such
deposit account or Obligation as Borrower specifies. After the occurrence of an
Event of Default, the receipt by Bank of any wire transfer of funds, check, or
other item of payment shall be immediately applied to conditionally reduce
Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when presented for payment. Notwithstanding
anything to the contrary contained herein, any wire transfer or payment received
by Bank after 12:00 noon California time shall be deemed to have been received
by Bank as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such
extension.
Fees. Borrower shall pay to Bank the following:
-----
FACILITY FEE. A Facility Fee equal to Fifty Thousand Dollars
($50,000), one half of which fee Bank has received, the second half of which
fee shall be due on the Closing Date, and all of which fee has been fully
earned and nonrefundable;
FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary fees and
out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for each
appraisal of Collateral and financial analysis and examination of any Borrower
performed from time to time by Bank or its agents;
BANK EXPENSES. Upon the date hereof, all Bank Expenses incurred through
the Closing Date, including reasonable attorneys' fees and expenses and, after
the date hereof, all Bank Expenses, including reasonable attorneys' fees and
expenses, as and when they become due.
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ADDITIONAL COSTS. In case any change in any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
subjects Bank to any tax with respect to payments of principal or interest
or any other amounts payable hereunder by Borrower or otherwise with respect to
the transactions contemplated hereby (except for taxes on the overall net income
of Bank imposed by the United States of America or any political subdivision
thereof);
imposes, modifies or deems applicable any deposit insurance, reserve,
special deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, Bank; or
imposes upon Bank any other condition with respect to its performance
under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
TERM. This Agreement shall become effective on the Closing Date and,
subject to Section 12.7, shall continue in full force and effect for a term
ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Advances under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
CONDITIONS OF LOANS
-------------------
CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Bank to make
the initial Advance is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, the following:
this Agreement;
a certificate of the Secretary of Borrower with respect to incumbency
and resolutions authorizing the execution and delivery of this Agreement;
a collateral assignment and patent mortgage;
financing statement (Form UCC-1);
insurance certificates;
payment of the fees and Bank Expenses then due specified in Section 2.5
hereof; and
such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.
CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Bank to make each
Advance, including the initial Advance, is further subject to the following
conditions:
timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1; and
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the representations and warranties contained in Section 5 shall be true
and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrower on the date of such
Advance as to the accuracy of the facts referred to in this Section 3.2(b).
CREATION OF SECURITY INTEREST
-----------------------------
GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Such security interest
constitutes a valid, first priority security interest (except for Permitted
Liens) in the presently existing Collateral, and will constitute a valid, first
priority security interest (except for Permitted Liens) in Collateral acquired
after the date hereof.
DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from time
to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
RIGHT TO INSPECT. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and performance
of the Loan Documents are within Borrower's powers, have been duly authorized,
and are not in conflict with nor constitute a breach of any provision contained
in such Borrower's Certificate of Incorporation or Bylaws, nor will they
constitute an event of default under any material agreement to which Borrower is
a party or by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound, which default could
have a Material Adverse Effect.
NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide existing
obligations. The property giving rise to such Eligible Accounts has been
delivered to the account debtor or to the account debtor's agent for immediate
shipment to and unconditional acceptance by the account debtor. Borrower has not
received notice of actual or imminent Insolvency Proceeding of any account
debtor that is included in any Borrowing Base Certificate as an Eligible
Account.
MERCHANTABLE INVENTORY. All Inventory is in all material respects of good
and marketable quality, free from all material defects.
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NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in the
Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
LITIGATION. Except as set forth in the Schedule, there are no actions or
proceedings pending by or against Borrower or any Subsidiary before any court or
administrative agency in which an adverse decision could have a Material Adverse
Effect or a material adverse effect on Borrower's interest or Bank's security
interest in the Collateral. Borrower has no knowledge of any such pending or
threatened actions or proceedings.
NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated
financial statements related to Borrower that have been delivered by Borrower to
Bank fairly present in all material respects Borrower's consolidated financial
condition as of the date thereof and Borrower's consolidated results of
operations for the period then ended. There has not been a material adverse
change in the consolidated financial condition of Borrower since the date of the
most recent of such financial statements submitted to Bank.
SOLVENCY. Borrower is solvent and able to pay its debts (including trade
debts) as they mature.
REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. No event has occurred resulting from Borrower's failure to comply with
ERISA that is reasonably likely to result in Borrower's incurring any liability
that could have a Material Adverse Effect. No Borrower is an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940. Borrower is not engaged principally, or
as one of the important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve System).
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's properties
or assets has ever been used by Borrower or any Subsidiary or, to the best of
Borrower's knowledge, by previous owners or operators, in the disposal of, or to
produce, store, handle, treat, release, or transport, any hazardous waste or
hazardous substance other than in accordance with applicable law; to the best of
Borrower's knowledge, none of Borrower's properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned by Borrower or any Subsidiary; and
neither Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal, state
or other governmental agency concerning any action or omission by Borrower or
any Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.
TAXES. Borrower and each Subsidiary have filed or caused to be filed all
tax returns required to be filed, and has paid, or has made adequate provision
for the payment of, all taxes reflected therein.
SUBSIDIARIES. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
GOVERNMENT CONSENTS. Borrower and each Subsidiary have obtained all
material consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted.
FULL DISCLOSURE. No representation, warranty or other statement made by
Borrower in any certificate or written statement furnished to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained in such certificates or statements not
misleading.
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AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
GOOD STANDING. Borrower shall maintain its and each of its Subsidiaries'
corporate existence and good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could have a Material Adverse Effect. Borrower shall maintain, and shall cause
each of its Subsidiaries to maintain, to the extent consistent with prudent
management of Borrower's business, in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver to
Bank: (a) as soon as available, but in any event within thirty (30) days after
the end of each month, a company prepared consolidated and consolidating balance
sheet and income statement covering Borrower's consolidated operations during
such period, certified by a Responsible Officer; (b) as soon as available, but
in any event within ninety (90) days after the end of Borrower's fiscal year,
audited consolidated and consolidating financial statements of Borrower prepared
in accordance with GAAP, consistently applied, together with an unqualified
opinion on such financial statements of an independent certified public
accounting firm reasonably acceptable to Bank; (c) within five (5) days upon
becoming available, copies of all statements, reports and notices sent or made
available generally by Borrower to its security holders or to any holders of
Subordinated Debt and all reports on Form 10-K and 10-Q filed with the
Securities and Exchange Commission; (d) promptly upon receipt of notice thereof,
a report of any legal actions pending or threatened against Borrower or any
Subsidiary that could individually result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (e) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of EXHIBIT C hereto, together with aged listings of
accounts receivable and accounts payable.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of EXHIBIT D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every twelve (12) months unless an Event of Default has occurred
and is continuing.
INVENTORY; RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
TAXES. Borrower shall make, and shall cause each Subsidiary to make, due
and timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A.,
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F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof satisfactory to Bank indicating that
Borrower or a Subsidiary has made such payments or deposits; provided that
Borrower or a Subsidiary need not make any payment if the amount or validity of
such payment is contested in good faith by appropriate proceedings and is
reserved against (to the extent required by GAAP) by Borrower.
Insurance
---------
Borrower, at its expense, shall keep the Collateral insured against loss
or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as ordinarily insured against by other owners in
similar businesses conducted in the locations where Borrower's business is
conducted on the date hereof. Borrower shall also maintain insurance relating to
Borrower's ownership and use of the Collateral in amounts and of a type that are
customary to businesses similar to Borrower's .
All such policies of insurance shall be in such form, with such companies,
and in such amounts as reasonably satisfactory to Bank. All such policies of
property insurance shall contain a lender's loss payable endorsement, in a form
satisfactory to Bank, showing Bank as an additional loss payee thereof and all
liability insurance policies shall show the Bank as an additional insured, and
shall specify that the insurer must give at least twenty (20) days notice to
Bank before canceling its policy for any reason. Upon Bank's request, borrower
shall deliver to Bank certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All proceeds payable under
any such policy shall, at the option of Bank, be payable to Bank to be applied
on account of the Obligations.
PRINCIPAL DEPOSITORY. Borrower shall maintain its principal depository
and operating accounts with Bank.
QUICK RATIO. Borrower on a consolidated basis shall maintain, as of the
last day of each calendar quarter, the following corresponding ratio of Quick
Assets to Current Liabilities:
Measurement Date Minimum Quick Ratio
---------------- -------------------
September 30, 1996 0.75:1.0
December 31, 1996 0.75:1.0
March 31, 1997 0.80:1.0
June 30, 1997 0.80:1.0
September 30, 1997 and thereafter 0.90:1.0
DEBT SERVICE COVERAGE. Borrower on a consolidated basis shall maintain,
as of the last day of each calendar quarter, a Debt Service Ratio of not less
than 1.45 to 1.0. "Debt Service Coverage" shall mean the sum of Borrower's net
profits, depreciation, amortization and interest for the preceding calendar
quarter, divided by the interest and principal payments due on Indebtedness of
Borrower for such calendar quarter.
DEBT-TANGIBLE NET WORTH RATIO. Borrower on a consolidated basis shall
maintain, as of the last day of each calendar quarter, a maximum ratio of Total
Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt,
as follows:
Measurement Date Maximum Debt/TNW
---------------- ----------------
September 30, 1996 2.5:1.0
December 31, 1996 2.5:1.0
March 31, 1997 2.0:1.0
June 30, 1997 2.0:1.0
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Measurement Date Maximum Debt/TNW
---------------- ----------------
September 30, 1997 and thereafter 1.5:1.0
TANGIBLE NET WORTH. Borrower on a consolidated basis shall maintain, as of
September 30, 1996, a Tangible Net Worth plus Subordinated Debt of not less than
Six Million Dollars ($6,000,000) and as of the last day of each succeeding
calendar quarter, a Tangible Net Worth plus Subordinated Debt of not less than
Six Million Dollars ($6,000,000) plus Fifty Percent (50%) of Borrower's
aggregate net profits (with no deduction for losses) from each quarter following
the quarter ending September 30, 1996.
PROFITABILITY. Borrower on a consolidated basis shall have a minimum net
profit after taxes on a consolidated basis, as follows:
Measurement Date (Quarter Ending) Maximum Quarterly Net Profit
--------------------------------- ----------------------------
September 30, 1996 $500,000
December 31, 1996 $250,000
March 31, 1997 $250,000
June 30, 1997 $500,000
September 30, 1997 and thereafter $500,000
REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. Borrower shall register or
cause to be registered on an expedited basis (to the extent not already
registered) with the United States Patent and Trademark Office or the United
States Copyright Office, as applicable, those intellectual property rights
listed on Exhibits A, B and C to the Collateral Assignment, Patent Mortgage and
Security Agreement delivered to Bank by such Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement. Borrower shall
register or cause to be registered with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those additional
intellectual property rights developed or acquired by Borrower from time to time
in connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C. Borrower shall
execute and deliver such additional instruments and documents from time to time
as Bank shall reasonably request to perfect Bank's security interest in such
additional intellectual property rights. This section shall not require
registration of any intellectual property prior to the occurrence of an uncured
Event of Default that Borrower reasonably determines is not necessary or
appropriate in the management of its business.
FURTHER ASSURANCES. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Advances, Borrower will
not do any of the following:
DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment.
CHANGE IN BUSINESS. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
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(or incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.
MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; provided,
however, that the foregoing shall not operate to prevent (i) mergers or
consolidations of any Subsidiary into Borrower or a sale, transfer or lease of
assets by any Subsidiary to Borrower or (ii) a merger of any Person into
Borrower or (iii) an acquisition by Borrower or any of its Subsidiaries of
capital stock or property for consideration not to exceed Two Million Five
Hundred Thousand Dollars ($2,500,000), provided in all cases that Borrower shall
be the surviving or continuing corporation and after giving effect to such
acquisition, merger or consolidation, (a) Borrower shall be in full compliance
with the terms of this Agreement (b) the management of Borrower shall remain
substantially unchanged, and (c) Bank shall have a first priority security
interest in the property acquired.
INDEBTEDNESS. Create, incur, assume or be or remain liable with respect
to any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
DISTRIBUTIONS. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, other than a redemption on account of Borrower's preferred stock in
accordance with its Certificate of Incorporation and a distribution of up to
Two Million Five Hundred Thousand Dollars ($2,500,000) per fiscal year,
provided in each case that Borrower shall be in full compliance with the terms
of this Agreement after such distribution or redemption.
INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit
to exist any material transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's business, upon fair
and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
SUBORDINATED DEBT. Make any payment in respect of any Subordinated Debt,
or permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Bank's prior written
consent.
INVENTORY. Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of the warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as may be necessary in the ordinary course of
Borrower's business, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
COMPLIANCE. Become an "investment company" controlled by an "investment
company," within the meaning of the Investment Company Act of 1940, or become
principally engaged in, or undertake as one of its important activities, the
business of extending credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Advance for such purpose; or fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair
Labor Standards Act; or violate any law or regulation, which violation could
have a Material Adverse Effect or a
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material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
PAYMENT DEFAULT. If Borrower fails to pay the principal of, or any
interest on, any Advances when due and payable; or fails to pay any portion of
any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty-five (35) days of receipt by
Borrower of an invoice for such other Obligations;
COVENANT DEFAULT. If Borrower fails to perform any obligation under
Sections 6.7, 6.8, 6.9, 6.10, 6.11 or 6.12 or violates any of the covenants
contained in Article 7 of this Agreement, or fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty-five (35) days) to attempt to cure such
default, and within such reasonable time period the failure to have cured such
default shall not be deemed an Event of Default (provided that no Advances will
be required to be made during such cure period);
MATERIAL ADVERSE CHANGE. If there occurs a material adverse change in
Borrower's business or financial condition, or if there is a material impairment
of the prospect of repayment of any portion of the Obligations or a material
impairment of the value or priority of Bank's security interests in the
Collateral;
ATTACHMENT. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency Proceeding
is commenced by Borrower, or if an Insolvency Proceeding is commenced against
Borrower and is not dismissed or stayed within twenty (20) days (provided that
no Advances will be made prior to the dismissal of such Insolvency Proceeding);
OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, (unless waived), to accelerate the maturity of any
Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000)
or that could have a Material Adverse Effect;
SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
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JUDGMENTS. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Advances will be made
prior to the satisfaction or stay of such judgment); or
MISREPRESENTATIONS. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.
BANK'S RIGHTS AND REMEDIES
--------------------------
RIGHTS AND REMEDIES. Upon the occurrence and during the continuance of an
Event of Default, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:
Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable (provided
that upon the occurrence of an Event of Default described in Section 8.5 all
Obligations shall become immediately due and payable without any action by
Bank);
Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower and
Bank;
Demand that Borrower (i) deposit cash with Bank in an amount equal to the
amount of any Letters of Credit remaining undrawn, as collateral security for
the repayment of any future drawings under such Letters of Credit, and Borrower
shall forthwith deposit and pay such amounts, and (ii) pay in advance all
Letters of Credit fees scheduled to be paid or payable over the remaining term
of the Letters of Credit;
Settle or adjust disputes and claims directly with account debtors for
amounts, upon terms and in whatever order that Bank reasonably considers
advisable;
Without notice to or demand upon Borrower, make such payments and do such
acts as Bank considers necessary or reasonable to protect its security interest
in the Collateral. Borrower agrees to assemble the Collateral if Bank so
requires, and to make the Collateral available to Bank as Bank may designate.
Borrower authorizes Bank to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower's owned premises, Borrower hereby grants Bank a license to enter into
possession of such premises and to occupy the same, without charge, in order to
exercise any of Bank's rights or remedies provided herein, at law, in equity, or
otherwise;
Without notice to Borrower set off and apply to the Obligations any and
all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at
any time owing to or for the credit or the account of Borrower held by Bank;
Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell (in the manner provided for herein) the Collateral.
Bank is hereby granted a license or other right, solely pursuant to the
provisions of this Section 9.1, to use, without charge, Borrower's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank's
exercise of its rights under this Section 9.1, Borrower's rights under all
licenses and all franchise agreements shall inure to Bank's benefit;
Sell the Collateral at either a public or private sale, or both, by way of
one or more contracts or transactions, for cash or on terms, in such manner and
at such places (including Borrower's premises) as Bank
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determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
Bank may credit bid and purchase at any public sale; and
Any deficiency that exists after disposition of the Collateral as provided
above will be paid immediately by Borrower.
POWER OF ATTORNEY. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
ACCOUNTS COLLECTION. At any time from the date of this Agreement, Bank may
notify any Person owing funds to Borrower of Bank's security interest in such
funds and verify the amount of such Account. Borrower shall collect all amounts
owing to Borrower for Bank, receive in trust all payments as Bank's trustee, and
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
BANK EXPENSES. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
REMEDIES CUMULATIVE. Bank's rights and remedies under this Agreement, the
Loan Documents, and all other agreements shall be cumulative. Bank shall have
all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by Bank of one right or remedy shall be
deemed an election, and no waiver by Bank of any Event of Default on Borrower's
part shall be deemed a continuing waiver. No delay by Bank shall constitute a
waiver, election, or acquiescence by it. No waiver by Bank shall be effective
unless made in a written document signed on behalf of Bank and then shall be
effective only in the specific instance and for the specific purpose for which
it was given.
WAIVERS; INDEMNIFICATION
------------------------
DEMAND; PROTEST. Borrower waives demand, protest, notice of protest,
notice of dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Bank on which Borrower may in any way be liable.
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BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with reasonable
banking practices, Bank shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever. All risk of loss, damage
or destruction of the Collateral shall be borne by Borrower.
INDEMNIFICATION. Borrower shall defend, indemnify and hold harmless Bank
and its officers, employees, and agents against: (a) all obligations, demands,
claims, and liabilities claimed or asserted by any other party in connection
with the transactions contemplated by this Agreement; and (b) all losses or
reasonable Bank Expenses in any way suffered, incurred, or paid by Bank as a
result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower under this Agreement which result from
any breach or failure to perform by Borrower of any representation, warranty,
covenant or agreement of Borrower contained in this Agreement; including without
limitation in each case with respect to (a) and (b) reasonable attorneys fees
and expenses, but excluding in the case of (a) and (b) all obligations, demands,
claims, liabilities, Bank Expenses and losses caused by Bank's gross negligence
or willful misconduct.
NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: Electronic Designs, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank: Silicon Valley East
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Borrower and Bank hereby submit to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
▇▇▇▇▇, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
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GENERAL PROVISIONS
------------------
SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; PROVIDED, HOWEVER, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
TIME OF ESSENCE. Time is of the essence for the performance of all
obligations set forth in this Agreement.
SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be amended
or terminated orally. This Agreement amends and restates the terms of the
Original Agreement. All prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are superseded by this Agreement and
the Loan Documents. All obligations under the Original Agreement are Obligations
under this Agreement. The security interest granted under the Original Agreement
remains in full force and effect and the financing statements filed in
connection with the Original Agreement continue to perfect Bank's security
interest in the collateral described therein.
COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
SURVIVAL. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
10.3 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ELECTRONIC DESIGNS, INC.
By:
---------------------------------
Title:
------------------------------
SILICON VALLEY BANK
By:
---------------------------------
Title:
------------------------------
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