PHOTON DYNAMICS, INC.
LOAN AND SECURITY AGREEMENT
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS AND CONSTRUCTION.....................................................................1
1.1 Definitions. .....................................................................1
1.2 Accounting Terms. ................................................................7
2. LOAN AND TERMS OF PAYMENT........................................................................7
2.1 Advances...........................................................................7
2.2 Overadvances. ....................................................................7
2.2 Intentionally Omitted..............................................................7
2.3 Interest Rates, Payments, and Calculations.........................................7
2.4 Crediting Payments. ..............................................................8
2.5 Fees...............................................................................8
2.6 Additional Costs. ................................................................8
3. CONDITIONS OF LOANS..............................................................................9
3.1 Conditions Precedent to Initial Advance. .........................................9
3.2 Conditions Precedent to Additional Advances........................................9
4. CREATION OF SECURITY INTEREST...................................................................10
4.1 Grant of Security Interest. .....................................................10
4.2 Delivery of Additional Documentation Required.....................................10
4.3 Right to Inspect..................................................................10
5. REPRESENTATIONS AND WARRANTIES..................................................................10
5.1 Due Organization and Qualification. .............................................10
5.2 Due Authorization; No Conflict. .................................................10
5.3 No Prior Encumbrances.............................................................10
5.4 Bona Fide Accounts................................................................10
5.5 Merchantable Inventory............................................................10
5.6 Intellectual Property. ..........................................................11
5.7 Name; Location of Chief Executive Office..........................................11
5.8 Litigation........................................................................11
5.9 No Material Adverse Change in Financial Statements................................11
5.10 Solvency.........................................................................11
5.11 Regulatory Compliance............................................................11
5.12 Environmental Condition..........................................................11
5.13 Taxes............................................................................12
5.14 Subsidiaries.....................................................................12
5.15 Government Consents..............................................................12
5.16 Full Disclosure..................................................................12
-i-
6. AFFIRMATIVE COVENANTS...........................................................................12
6.1 Good Standing.....................................................................12
6.2 Government Compliance.............................................................12
6.3 Financial Statements, Reports, Certificates. .....................................12
6.4 Inventory; Returns................................................................13
6.5 Taxes.............................................................................13
6.6 Insurance.........................................................................13
6.7 Principal Depository..............................................................13
6.8 Quick Ratio. ....................................................................13
6.9 Debt-Net Worth Ratio. ...........................................................13
6.10 Profitability. ..................................................................14
6.11 Tangible Net Worth. .............................................................14
6.12 Registration of Intellectual Property Rights......................................14
6.13 Further Assurances................................................................14
7. NEGATIVE COVENANTS..............................................................................14
7.1 Dispositions......................................................................15
7.2 Change in Business................................................................15
7.3 Mergers or Acquisitions...........................................................15
7.4 Indebtedness......................................................................15
7.5 Encumbrances......................................................................15
7.6 Distributions.....................................................................15
7.7 Investments.......................................................................15
7.8 Transactions with Affiliates......................................................15
7.9 Intellectual Property Agreements..................................................15
7.10 Subordinated Debt................................................................15
7.11 Inventory........................................................................15
7.12 Compliance.......................................................................15
8. EVENTS OF DEFAULT...............................................................................16
8.1 Payment Default...................................................................16
8.2 Covenant Default. ...............................................................16
8.3 Material Adverse Change...........................................................16
8.4 Attachment........................................................................16
8.5 Insolvency........................................................................16
8.6 Other Agreements..................................................................16
8.7 Subordinated Debt.................................................................17
8.8 Judgments.........................................................................17
8.9 Misrepresentations................................................................17
8.10 Default Under Exim Loan Documents ...............................................17
9. BANK'S RIGHTS AND REMEDIES......................................................................17
9.1 Rights and Remedies...............................................................17
9.2 Power of Attorney.................................................................18
9.3 Accounts Collection...............................................................18
9.4 Bank Expenses.....................................................................18
9.5 Bank's Liability for Collateral...................................................19
9.6 Remedies Cumulative...............................................................19
9.7 Demand; Protest...................................................................19
10. NOTICES.........................................................................................19
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER......................................................19
12. GENERAL PROVISIONS..............................................................................20
12.1 Successors and Assigns...........................................................20
12.2 Indemnification..................................................................20
12.3 Time of Essence..................................................................20
12.4 Severability of Provisions.......................................................20
12.5 Amendments in Writing, Integration...............................................20
12.6 Counterparts.....................................................................20
12.7 Survival.........................................................................20
This LOAN AND SECURITY AGREEMENT is entered into as of March 25, 1999,
by and between SILICON VALLEY BANK ("Bank") and PHOTON DYNAMICS, INC.
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the
following terms shall have the following definitions:
"Accounts" means all presently existing and
hereafter arising accounts, contract rights, and all other forms of obligations
owing to Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a cash advance under
the Revolving Facility.
"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 Borrower's books and
records including: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and
all computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to
seventy-five percent (75%) of Eligible Accounts.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized
or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT
A attached hereto.
1
"Contingent Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determined amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith; provided, however, that such amount shall not in any
event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.
"Copyrights" means any and all copyright rights,
copyright applications, copyright registrations and like protections in each
work or authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held.
"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 extendible at the option of
Borrower or any Subsidiary to a date more than one year from the date of
determination.
"Daily Balance" means the amount of the Obligations
owed at the end of a given day.
"Eligible Accounts" means those Accounts that arise
in the ordinary course of Borrower's business that comply with all of
Borrower's representations and warranties to Bank set forth in Section 5.4;
PROVIDED, that standards of eligibility may be fixed and revised from time to
time by Bank 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:
(i) Accounts that the account debtor has
failed to pay within ninety (90) days of invoice date;
(ii) 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;
(iii) Accounts with respect to which the
account debtor is an officer, employee, or agent of Borrower;
(iv) 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;
(v) Accounts with respect to which the
account debtor is an Affiliate of Borrower;
(vi) Accounts with respect to which the
account debtor does not have its principal place of business in the United
States, except for Eligible Foreign Accounts;
2
(vii) Accounts with respect to which the
account debtor is the United States or any department, agency, or
instrumentality of the United States, unless properly documented under the
Assignment of Claims Act;
(viii) Accounts with respect to which
Borrower is liable to the account debtor for goods sold or services rendered by
the account debtor to Borrower, but only to the extent of any amounts owing to
the account debtor against amounts owed to Borrower;
(ix) Accounts with respect to an account
debtor, including Subsidiaries and Affiliates, whose total obligations to
Borrower exceed twenty-five percent (25%) of all Accounts, except if the
account debtor is LG Electronics, Samsung America, Dpix or National
Semiconductor, the maximum percentage for such Accounts shall be fifty percent
(50%), or such other account debtors that Bank may approve in writing increased
concentration allowances on a case by case basis;
(x) 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
(xi) Accounts the collection of which
Bank reasonably determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with
respect to which the account debtor does not have its principal place of
business in the United States and that are: (1) covered by credit insurance in
form and amount, and by an insurer satisfactory to Bank less the amount of any
deductible(s) which may be or become owing thereon; or (2) supported by one or
more letters of credit in favor of Bank as beneficiary, in an amount and of a
tenor, and issued by a financial institution, acceptable to Bank; or (3) that
Bank approves on a case-by-case basis.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder.
"Exim Loan Documents" means that certain Loan and
Security Agreement by and between Borrower and Bank of even date herewith
guaranteed by the Export Import Bank and any other agreement entered into by
Borrower and Bank in connection therewith.
"GAAP" means generally accepted accounting
principles as in effect from time to time.
"Indebtedness" means (a) all indebtedness for
borrowed money or the deferred purchase price of property or services,
including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means any and all
right, title and interest of Borrower in the following:
(a) Copyrights, Trademarks and Patents;
3
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be
available to Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of
past, present and future infringement of any of the rights included above, with
the right, but not the obligation, to ▇▇▇ for and collect such damages for said
use or infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of
the Copyrights, Patents or Trademarks, and all license fees and royalties
arising from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of
any of the Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
"Inventory" means all present and future inventory
in which Borrower has any interest, including merchandise, raw materials,
parts, supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by or
in the custody or possession, actual or constructive, of Borrower, including
such inventory as is temporarily out of its custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this
Agreement, any note or notes executed by Borrower, and any other agreement
entered into between Borrower and Bank in connection with this Agreement, all
as amended or extended from time to time.
"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 date immediately preceding
the first (1st) anniversary of the Closing Date.
"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.
4
"New Equity" means the receipt of equity by Borrower
subsequent to the Closing Date in the form of cash proceeds from the sale of
its capital stock or Subordinated Debt, other than in a nonfinancing
transaction to employees, officers, directors and consultants of Borrower.
"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.
"Patents" means all patents, patent applications and
like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"Payment Date" means the tenth (10th) calendar day
of the month.
"Periodic Payments" means all installments or
similar recurring payments that Borrower may now or hereafter become obligated
to pay to Bank pursuant to the terms and provisions of any instrument, or
agreement now or hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the date of this
Agreement and disclosed in the Schedule;
(c) Indebtedness to trade creditors incurred in
the ordinary course of business; and
(d) Subordinated Debt.
"Permitted Investment" means:
(a) Investments existing on the Date of this
Agreement 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:
(a) Any Liens existing on the date of this
Agreement 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;
5
(c) Liens (i) upon or in any equipment acquired
or held by Borrower or any of its Subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time
of its acquisition, PROVIDED that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment; and
(d) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) and (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 unrestricted cash and cash-equivalents;
net, billed accounts receivable; and investments with maturities not to exceed
one year, of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief
Executive Officer and the Chief Financial Officer of Borrower.
"Revolving Advance" means a cash advance or cash
advances under the Revolving Facility.
"Revolving Committed Line" means One Million Dollars
($1,000,000).
"Revolving Facility" means the facility under which
Borrower may request Bank to issue cash advances, 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 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, 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.
"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.
6
"Trademarks" means any trademark and servicemark
rights, whether registered or not, applications to register and registrations
of the same and like protections, and the entire goodwill of the business of
Borrower connected with and symbolized by such trademarks.
1.2 ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations made hereunder shall be made in accordance with GAAP. When used
herein, the terms "financial statements" shall include the notes and schedules
thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 ADVANCES.
(a) REVOLVING LOAN. Subject to and upon the
terms and conditions of this Agreement, Bank agrees to make Advances to
Borrower under the Revolving Facility in an aggregate amount not to exceed the
lesser of the Revolving Committed Line or the Borrowing Base. 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 Maturity
Date. The Revolving Facility shall terminate on the Maturity Date, at which
time all Revolving Advances under this Section 2.1 shall be immediately due and
payable.
(b) Interest shall accrue on the outstanding
Advances from the date of each Advance, at the rate specified in Section
2.3(a), and shall be payable monthly on the Payment Date of each month through
the Maturity Date, on which date the Advances and any accrued and unpaid
interest and other unpaid charges shall be payable.
(c) When Borrower desires an Advance, Borrower
will notify Bank by facsimile transmission or telephone no later than 2:00 p.m.
California time, on the Business Day that such Advance is to be made. Such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of EXHIBIT B hereto. 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 the Advance to Borrower's deposit account.
2.2 OVERADVANCES. If, at any time, or for any reason,
the amount of Obligations owed by Borrower to Bank pursuant to Section 2.1 of
this Agreement is greater than the lesser of (i) the Committed Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in
Section 2.3(b), Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to one and one-quarter (1.25) percentage points above
the Prime Rate. Notwithstanding the foregoing, at such time as Borrower
achieves two (2) consecutive quarters of profitability as set forth in Section
6.10 herein, any Advances under this Agreement shall bear interest, on the
average Daily Balance thereof, at a rate equal to seventy five hundredths of
one (0.75) percentage point above the Prime Rate.
(b) 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.
(c) PAYMENTS. Interest hereunder shall be due
and payable on the Payment Date of each month during the term hereof. Bank
shall, at its option, charge such interest, all Bank Expenses, and all Periodic
Payments against any of Borrower's deposit accounts or against the Revolving
Committed Line, in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid when
7
due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of 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.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an
Event of Default, Bank shall credit a wire transfer of funds, check or other
item of payment to such deposit account or Obligation as Borrower specifies.
After the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment shall be immediately applied
to conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 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.
2.5 FEES. Borrower shall pay to Bank the following:
(a) FACILITY FEE. A facility fee equal to Five
Thousand Dollars ($5,000) which fee shall be due on the Closing Date and shall
be fully earned and nonrefundable;
(b) 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 financial analysis and examination of
Borrower performed from time to time by Bank or its agents provided that
Borrower's responsibility for Bank's audits shall be limited to Five Hundred
Dollars ($500) per occurrence; and
(c) BANK EXPENSES. Upon the date hereof, all
Bank Expenses incurred through the Closing Date, including reasonable
attorneys' fees and expenses, which in any event shall not exceed Five Thousand
Dollars ($5,000) in the aggregate for Bank Expenses and Exim Bank Expenses (as
defined in the Exim Loan Documents) incurred prior to the Closing Date, and,
after the date hereof, all Bank Expenses, including reasonable attorneys' fees
and expenses, as and when they become due.
2.6 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:
(a) 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);
(b) 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
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement,
8
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.
(d) 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 any
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.
3. CONDITIONS OF LOANS
3.1 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:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower
with respect to incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an intellectual property security agreement;
(d) accounts receivable audit with results
satisfactory to Bank;
(e) financing statement (Forms UCC-1);
(f) insurance certificate;
(g) payment of the fees and Bank Expenses then
due specified in Section 2.5 hereof;
(h) timely receipt of the Payment/Advance Form
as provided in Section 2.1; and
(i) such other documents, and completion of
such other matters, as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ADDITIONAL ADVANCES.
CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Bank to make each
Advance, including the initial Advance, is further subject to the following
conditions:
(a) timely receipt by Bank of the
Payment/Advance Form as provided in Section 2.1; and
(b) the representations and warranties
contained in Section 5 shall be true and correct in all material respects on
and as of the date of such Payment/Advance Form and on the effective date of
each 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. Except as otherwise disclosed to Bank in writing, and approved by
Bank, 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).
9
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and
pledges to Bank a continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure prompt repayment of
any and all Obligations and in order to secure prompt performance by Borrower
of each of its covenants and duties under the Loan Documents. Except as set
forth in the Schedule, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED.
Borrower shall from time to time execute and deliver to Bank, at the request of
Bank, all Negotiable Collateral, all financing statements and other documents
that Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers,
employees, or agents) shall have the right, 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.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and
each Subsidiary is a corporation duly existing 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.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution,
delivery, and performance of the Loan Documents are within Borrower's powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Articles of Incorporation or Bylaws,
nor will they constitute an event of default under any material agreement to
which Borrower is a party or by which Borrower is bound except to the extent
that certain intellectual property agreements prohibit the assignment of the
rights thereunder to a third party without the Borrower's or other party's
consent and the Loan Documents constitute an assignment. 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.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts
are bona fide existing obligations. The property giving rise to such Eligible
Accounts has been delivered to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all
material respects of good and marketable quality, free from all material
defects.
5.6 INTELLECTUAL PROPERTY. Borrower is the sole owner of
the Intellectual Property Collateral, except for non-exclusive licenses granted
by Borrower to its customers in the ordinary course of business. To the best of
Borrower's knowledge, each of the Patents is valid and enforceable, and no part
of the Intellectual Property Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property Collateral violates the rights of any third party.
Except for and upon the filing with the
10
United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and except as
has been already made or obtained, no authorization, approval or other action
by, and no notice to or filing with, any United States governmental authority
or United States regulatory body is required either (i) for the grant by
Borrower of the security interest granted hereby or for the execution, delivery
or performance of Loan Documents by Borrower in the United States or (ii) for
the perfection in the United States or the exercise by Bank of its rights and
remedies hereunder.
5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as
disclosed in the Schedule, Borrower has not done business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.8 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
does not have knowledge of any such pending or threatened actions or
proceedings.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements related to Borrower and any Subsidiary
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.
5.10 SOLVENCY. The fair saleable value of Borrower's
assets (including goodwill minus disposition costs) exceeds the fair value of
its liabilities; Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement; and Borrower is able to pay its
debts (including trade debts) as they mature.
5.11 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. Borrower is
not an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940. Borrower is
not engaged principally, or as one of the important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations 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.
5.12 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.
5.13 TAXES. Borrower and each Subsidiary has filed or
caused to be filed all tax returns required to be filed, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
11
5.14 SUBSIDIARIES. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.15 GOVERNMENT CONSENTS. Borrower and each Subsidiary
has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all governmental
authorities that are necessary for the continued operation of Borrower's
business as currently conducted.
5.16 FULL DISCLOSURE. No representation, warranty or
other statement made by Borrower in any certificate or written statement
furnished to Bank contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make an Advance hereunder, Borrower shall do all of the following:
6.1 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.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and
shall cause each Subsidiary to meet, the minimum funding requirements of ERISA
with respect to any employee benefit plans subject to ERISA. Borrower shall
comply, and shall cause each Subsidiary to comply, with all statutes, laws,
ordinances and government rules and regulations to which it is subject,
noncompliance with which could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
Borrower shall deliver to Bank: (a) as soon as available, but in any event
within twenty (20) days after the end of each fiscal quarter, a company
prepared consolidating balance sheet and income statement covering Borrower's
operations during such period, certified by a Responsible Officer; (b) as
soon as available, but in any event within one hundred twenty (120) days
after the end of Borrower's fiscal year, audited consolidated 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
and any accompanying management reports; (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 result in damages or costs to Borrower or any
Subsidiary of Two Hundred Fifty Thousand Dollars ($250,000) 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 D hereto, together
with aged listings of accounts receivable and accounts payable.
Borrower shall deliver to Bank with the quarterly
financial statements a Compliance Certificate signed by a Responsible Officer
in substantially the form of EXHIBIT E hereto, together with a backlog report.
Bank shall have a right from time to time hereafter
to audit Borrower's Accounts at Borrower's expense, which in no event shall
exceed Five Hundred Dollars ($500.00) per occurrence.
12
6.4 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 Two Hundred Fifty Thousand Dollars ($250,000).
6.5 TAXES. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower will make, and will
cause each Subsidiary to make, timely payment or deposit of all material tax
payments and withholding taxes required of it by applicable laws, including,
but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability,
and local, state, and federal income taxes, and will, upon request, furnish
Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary
has made such payments or deposits; provided that Borrower or a Subsidiary need
not make any payment if the amount or validity of such payment is contested in
good faith by appropriate proceedings and is reserved against (to the extent
required by GAAP) by Borrower.
6.6 INSURANCE.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, as ordinarily
insured against by other owners in similar businesses conducted in the
locations where Borrower's business is conducted on the date hereof. Borrower
shall also maintain insurance relating to Borrower's ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar to
Borrower's.
(b) All such policies of insurance shall be in
such form, with such companies and in such amounts as reasonably satisfactory
to Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. Upon Bank's request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank for application to the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrower shall maintain its
principal depository and operating accounts with Bank on or before June 30,
1999.
6.8 QUICK RATIO. Borrower shall maintain, as of the last
day of each fiscal quarter, a ratio of Quick Assets to Current Liabilities of
at least 1.75 to 1.0.
6.9 DEBT-NET WORTH RATIO. Borrower shall maintain, as of
the last day of each fiscal quarter, a ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than
0.5 to 1.0.
6.10 PROFITABILITY. Borrower shall have a net profit as
of the last day of each fiscal quarter, and as of the last day of each fiscal
year; provided, however, that Borrower may incur a loss of up to Seven Hundred
Fifty Thousand Dollars ($750,000) for the fiscal quarter ending March 31, 1999.
6.11 TANGIBLE NET WORTH. Borrower shall maintain, as of
the last day of each fiscal quarter, a Tangible Net Worth of at least
$14,250,000, PLUS seventy-five percent (75%) of quarterly net profits, New
Equity and Subordinated Debt.
6.12 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
13
(a) Borrower shall register or cause to be
registered (to the extent not already registered) with the United States Patent
and Trademark Office or the United States Copyright Office, as applicable,
those intellectual property rights listed on Exhibits A, B and C to the
Intellectual Property Security Agreement delivered to Bank by Borrower in
connection with this Agreement within thirty (30) days of the date of this
Agreement. Borrower shall register or cause to be registered with the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, those additional intellectual property rights developed or acquired
by Borrower from time to time in connection with any product prior to the sale
or licensing of such product to any third party, including without limitation
revisions or additions to the intellectual property rights listed on such
Exhibits A, B and C.
(b) Borrower shall execute and deliver such
additional instruments and documents from time to time as Bank shall reasonably
request to perfect Bank's security interest in the Intellectual Property
Collateral.
(c) Borrower shall (i) protect, defend and
maintain the validity and enforceability of the Trademarks, Patents and
Copyrights listed on Exhibits A, B and C of the Intellectual Property Security
Agreement, (ii) detect infringements of the Trademarks, Patents and Copyrights
listed on such Exhibits A, B and C and promptly advise Bank in writing of
material infringements detected and (iii) not allow any Trademarks, Patents or
Copyrights listed on such Exhibits A, B and C to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Bank determines that reasonable business
practices suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the
obligation, to take, at Borrower's sole expense, any actions that Borrower is
required under this Section 6.12 to take but which Borrower fails to take,
after fifteen (15) days' notice to Borrower. Borrower shall reimburse and
indemnify Bank for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 6.12.
6.13 FURTHER ASSURANCES. At any time and from time to
time Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make the Advance,
Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries; (iii) Transfers of worn-out or
obsolete Equipment or new Equipment financed by other vendors; or (iv)
Transfers of Equipment not in excess of Five Hundred Thousand Dollars
($500,000) provided that such Transfers do not cause an Event of Default.
7.2 CHANGE IN BUSINESS. Engage in any business, or
permit any of its Subsidiaries to engage in any business, other than the
businesses currently engaged in by Borrower and any business substantially
similar or related thereto (or incidental thereto) 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.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person.
14
7.4 INDEBTEDNESS. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to
exist any Lien in excess of One Hundred Thousand Dollars ($100,000) with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 INVESTMENTS. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries
so to do, other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a nonaffiliated
Person.
7.9 INTELLECTUAL PROPERTY AGREEMENTS. Borrower shall not
permit the inclusion in any material contract to which it becomes a party of
any provisions that could or might in any way prevent the creation of a
security interest in Borrower's rights and interests in any property included
within the definition of the Intellectual Property Collateral acquired under
such contracts.
7.10 SUBORDINATED DEBT. Make any payment in respect of
any Subordinated Debt, or permit any of its Subsidiaries to make any such
payment, except if such payment (a) is in compliance with the terms of such
Subordinated Debt, (b) not in excess of Two Hundred Fifty Thousand Dollars
($250,000), and (c) does not cause an Event of Default under this Agreement, or
amend any provision contained in any documentation relating to the Subordinated
Debt without Bank's prior written consent.
7.11 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 or shipped
in the ordinary course of business and except for such other locations as Bank
may approve in writing, Borrower shall keep the Inventory only at the location
set forth in Section 10 hereof and such other locations of which Borrower gives
Bank prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.12 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. 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 material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay the
principal of, or any interest on, the Advance when due and payable; or fails to
pay any portion of any other Obligations not constituting such principal
15
or interest, including without limitation Bank Expenses, within thirty (30)
days of receipt by Borrower of an invoice for such other Obligations;
8.2 COVENANT DEFAULT. If Borrower fails to perform any
obligation under Section 6.7, 6.8, 6.9, 6.10 or 6.11 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 (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to have cured such default shall not be deemed an Event of Default
(provided that no Advance will be required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there occurs a material
adverse change in Borrower's business or financial condition, or if there is a
material impairment of the prospect of repayment of any portion of the
Obligations or a material impairment of the value or priority of Bank's
security interests in the Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within 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 Advance will be required to be
made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within ten (10)
days (provided that no Advance will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default (i) in any
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of Two
Hundred Fifty Thousand Dollars ($250,000) or (ii) that could have a Material
Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank or in accordance with
Section 7.10 of this Agreement;
8.8 JUDGMENTS. If a judgment or judgments for the
payment of money in an amount, individually or in the aggregate, of at least
One Hundred Thousand Dollars ($100,000) shall be rendered against Borrower and
shall remain unsatisfied and unstayed for a period of ten (10) days (provided
that no Advance will be made prior to the satisfaction or stay of such
judgment);
8.9 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
16
Responsible Officer pursuant to this Agreement or to induce Bank to enter
into this Agreement or any other Loan Document; or
8.10 DEFAULT UNDER EXIM LOAN DOCUMENTS. If there is a default
by Borrower under the Exim Loan Documents.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice
of its election and without demand, do any one or more of the following, all
of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement or under any other
agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) 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;
(e) 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;
(f) 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;
(g) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Bank determines is commercially reasonable, and apply any
proceeds to the Obligations in whatever manner or order Bank deems
appropriate;
(h) Bank may credit bid and purchase at any public
sale; and
(i) Any deficiency that exists after disposition
of the Collateral as provided above will be paid immediately by Borrower.
17
9.2 POWER OF ATTORNEY. Effective only upon the occurrence
and during the continuance of an Event of Default, Borrower hereby
irrevocably appoints Bank (and any of Bank's designated officers, or
employees) as Borrower's true and lawful attorney to: (a) send requests for
verification of Accounts or notify account debtors of Bank's security
interest in the Accounts; (b) endorse Borrower's name on any checks or other
forms of payment or security that may come into Bank's possession; (c) sign
Borrower's name on any invoice or ▇▇▇▇ 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; (e) to modify, in its sole discretion, any intellectual
property security agreement entered into between Borrower and Bank without
first obtaining Borrower's approval of or signature to such modification by
amending Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to
include reference to any right, title or interest in any Copyrights, Patents
or Trademarks and acquired by Borrower after the execution hereof or to
delete any reference to any right, title or interest in any Copyrights,
Patents or Trademarks in which Borrower no longer has or claims any right,
title or interest; (f) to file, in its sole discretion, one or more financing
or continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Borrower where permitted by law; and (h)
to transfer the Intellectual Property Collateral into the name of Bank or a
third party to the extent permitted under the California Uniform Commercial
Code 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; and (g) 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.
9.3 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.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of
the following: (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. Bank shall have a non-exclusive, royalty-free license
to use the Intellectual Property Collateral to the extent reasonably
necessary to permit Bank to exercise its rights and remedies upon the
occurrence of an Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank
complies with Section 9207 of the Code, 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.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Bank of one right or remedy shall be deemed an election, and no waiver by
Bank of any Event of Default on Borrower's part shall be deemed a continuing
waiver. No delay by Bank shall constitute a waiver, election, or acquiescence
by it. No waiver by Bank
18
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Bank on which
Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement
entered into in connection herewith shall be in writing and (except for
financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by a
recognized overnight delivery service, certified mail, postage prepaid,
return receipt requested, or by telefacsimile to Borrower or to Bank, as the
case may be, at its addresses set forth below:
If to Borrower: Photon Dynamics, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank: Silicon Valley Bank
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard
to principles of conflicts of law. Each of Borrower and Bank hereby submits
to the 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.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of
each of the parties; PROVIDED, HOWEVER, that neither this Agreement nor any
rights hereunder may be assigned by Borrower without Bank's prior written
consent, which consent may be granted or withheld in Bank's sole discretion.
Bank shall have the right without the consent of or notice to Borrower to
sell, transfer, negotiate, or grant participation in all or any part of, or
any interest in, Bank's obligations, rights and benefits hereunder.
19
12.2 INDEMNIFICATION. Borrower shall defend, indemnify and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by this
Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred,
or paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under this
Agreement, or otherwise (including without limitation reasonable attorneys
fees and expenses), except for losses caused by Bank's gross negligence or
willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement
cannot be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an
original, and all of which, when taken together, shall constitute but one and
the same Agreement.
12.7 SURVIVAL. All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding. The obligations of Borrower to
indemnify Bank with respect to the expenses, damages, losses, costs and
liabilities described in Section 12.2 shall survive until all applicable
statute of limitations periods with respect to actions that may be brought
against Bank have run.
20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
PHOTON DYNAMICS, INC.
By:
---------------------------------
Title:
------------------------------
SILICON VALLEY BANK
By:
---------------------------------
Title:
------------------------------
21
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
1. 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;
2. 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,
and Borrower's Books relating to any of the foregoing;
3. 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;
4. 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 and
Borrower's Books relating to any of the foregoing;
5. All documents, cash, deposit accounts, securities, financial
assets, investment properties, securities accounts, securities entitlements,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
6. 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
7. Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.