EXHIBIT 10.2
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of November 12, 1998,
by and between SILICON VALLEY BANK, a California-chartered bank, with its
principal place of business at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
and with a loan production office located at Wellesley Office Park, ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, doing business under the name
"Silicon Valley East" ("Bank") and SEACHANGE INTERNATIONAL, INC., a Delaware
corporation with its principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Borrower").
RECITALS
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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
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The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
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1.1. Definitions. As used in this Agreement, the following terms shall
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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 loan advance under the Committed
Revolving Line.
"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, partners and, for any Person
that is a limited liability company, such Persons, managers and members.
"Agreement" means this Loan and Security Agreement.
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"Approved Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States, which the Bank approves on a case by case basis.
"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, (including fees and
expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: 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: (i) eighty percent (80.0%)
of Eligible Accounts, plus (ii) ninety percent (90%) of Eligible Foreign
Accounts, plus (iii) a percentage determined by the Bank, on a case by case
basis, of Approved Foreign Accounts, up to a maximum amount equal to
thirty-five percent (35.0%) of the total aggregate Borrowing Base, each as
determined by Bank with reference to the most recent Borrowing Base
Certificate delivered by Borrower, minus (iv) at any time prior to the Debt
Service Coverage Event, the amounts outstanding under the Committed
Equipment Line.
"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.
"Committed Revolving Line" means a credit extension of up to Six
Million Dollars ($6,000,000.00).
"Committed Equipment Line" means a credit extension of up to Three
Million Dollars ($3,000,000.00).
"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
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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.
"Credit Extension" means each Advance, Equipment Advance or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"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
Credit Extensions 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.
"Debt Service Coverage Event" means the first day of the calendar
month immediately following the achievement by the Borrower of a Debt
Service Coverage Ratio of at least 1.5 to 1.0 for the two prior consecutive
fiscal quarters of the Borrower, as confirmed by Bank with reference to the
most recent Compliance Certificate delivered by Borrower.
"Debt Service Coverage Ratio" means the Borrower's earnings after tax
plus interest and non-cash expenses (depreciation and amortization) divided
by the current portion of its long term debt, plus interest.
"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. Unless
otherwise agreed to by Bank in writing, Eligible Accounts shall not include
the following:
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(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) 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;
(c) Accounts with respect to an account debtor, including
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;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for
account debtors having their principal place of business in Canada;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department,
agency, or instrumentality thereof, except for those Accounts of the
United States or any department, agency or instrumentality thereof as
to which the payee has assigned its rights to payment thereof to Bank
and the assignment has been acknowledged, pursuant to the Assignment
of Claims Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the
account debtor (sometimes referred to as "contra" accounts, e.g.
accounts payable, customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional equipment,
or 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;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) 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
(j) Accounts the collection of which Bank reasonably determines
in accordance with its standard commercial practices to be doubtful.
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"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States or Canada 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 an amount and of a tenor, and issued by a
financial institution, acceptable to Bank.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1.2.
"Equipment Availability End Date No. 1" has the meaning set forth in
Section 2.1.2.
"Equipment Availability End Date No. 2" has the meaning set forth in
Section 2.1.2.
"Equipment Maturity Date No. 1" means that date which is the thirtieth
(30th) Payment Date after Equipment Availability End Date No. 1.
"Equipment Maturity Date No. 2" means June 5, 2002.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Guarantors" means SeaChange Systems, Inc., and GuestServe Networks,
Inc.
"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.
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"Insolvent" means: (a) the Borrower is not able to pay its debts
(including trade debts) as they mature; (or (b) the Borrower's liabilities
are greater than its assets (as determined in accordance with GAAP).
"Intellectual Property Collateral" means
(a) Copyrights, Trademarks, Patents, and Mask Works;
(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, Trademarks, or Mask Works, 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, Patents, or Mask Works; 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.
"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.
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"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 present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection
with this Agreement, all as amended, extended or restated from time to
time.
"Mask Works" means all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired;
"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 material obligations as the same
shall become due under the Loan Documents.
"Maturity Date" means, as applicable, (i) the Revolving Maturity Date
with respect to Advances, and (ii) the Equipment Maturity Date No. 1 and
the Equipment Maturity Date No. 2, as applicable, with respect to Equipment
Advances.
"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.
"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.
"Overadvance" is defined in Section 2.2.
"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 fifth (5th) calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Maturity Date.
"Permitted Indebtedness" means:
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(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) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens.
"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:
(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 and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the
same have no priority over any of Bank's security interests;
(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;
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(d) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering
in any material respect with the business of Borrower and its
Subsidiaries taken as a whole, and any interest or title of a lessor,
licensor or under any lease or license provided that such leases,
subleases, licenses and sublicenses do not prohibit the grant of the
security interest granted hereunder; and
(e) 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, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities
of fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means one day prior to the date which is one
(1) year from the Closing Date.
"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 with respect to any Person, corporation,
partnership, company association, joint venture, or any other business
entity of which more than fifty percent (50%) of the voting stock or other
equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
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"Tangible Net Worth" means as of any applicable date, 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, plus (iii) Subordinated Debt.
"Total Liabilities" means as of any applicable date, 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.
"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 Assignor
connected with and symbolized by such trademarks.
1.2. Accounting and Other Terms. All accounting terms not specifically
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defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
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2.1. Credit Extensions. Borrower promises to pay to the order of Bank, in
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lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1. (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate
outstanding amount not to exceed the Committed Revolving Line or the
Borrowing Base, whichever is less. 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 during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify
Bank by facsimile transmission or telephone no later than 3:00 p.m.
Eastern 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
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to make Advances under this Agreement, based upon instructions
received from a Responsible Officer or a designee of a Responsible
Officer. Bank shall be entitled to rely on any telephonic notice given
by a person who Bank reasonably believes to be a Responsible Officer
or a designee thereof, and Borrower shall indemnify
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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 Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the Revolving
Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly
specified herein) shall be immediately due and payable.
2.1.2. Equipment Advances.
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(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make advances (each an "Equipment Advance"
and collectively, the "Equipment Advances") to Borrower: (i) in one
advance to take place at any time after the Closing Date through
thirty (30) days after the Closing Date (the "Equipment Availability
End Date No. 1") in the aggregate outstanding amount not to exceed Two
Million Dollars ($2,000,000.00) (the "Equipment Line No. 1"), and (ii)
at any time and from time to time from the Equipment Availability End
Date No. 1 through June 30, 1999 (the "Equipment Availability End Date
No. 2") in the aggregate outstanding amount not to exceed Three
Million Dollars ($3,000,000.00) less the cumulative Equipment Advances
made under Equipment Line No. 1 (the "Equipment Line No. 2"). To
evidence the Equipment Advances, Borrower shall deliver to Bank, at
the time of each Equipment Advance request, an invoice for the
equipment to be purchased or refinanced. Equipment Advance requests
under Equipment Line No. 1 shall only be permitted for Equipment
purchased between July 2, 1997 and June 30, 1998. Equipment Advance
requests under Equipment Line No. 2 shall only be permitted for
Equipment purchased between July 1, 1998 and June 30, 1999. The
Equipment Advances shall be used only to purchase or refinance
Equipment and shall not exceed: (i) eighty percent (80.0%) of the
invoice amount on such equipment , including software, approved from
time to time by Bank under Equipment Line No. 1, and (ii) one hundred
percent (100%) of the invoice amount on such equipment, including
software, approved from time to time by Bank in accordance with its
standard commercial practices under Equipment Line No. 2, each of (i)
and (ii) excluding taxes, shipping, warranty charges, freight
discounts, and installation expense.
(b) Interest shall accrue from the date of each Equipment Advance
at the per annum rate of one percent (1.0%) above the Prime Rate and
shall be payable monthly on the Payment Date of each month. Any
Equipment Advances made pursuant to the Equipment Line No. 1 that are
outstanding on the Equipment Availability End Date No. 1 will be
payable in Thirty (30) equal monthly installments of principal, plus
all accrued interest, beginning on the Payment Date of the month
following Equipment Availability End Date No. 1 and ending on the
Equipment Maturity Date No. 1. Any Equipment Advances made pursuant to
the Equipment Line No. 2 that are outstanding on the Equipment
Availability End Date No. 2 will be payable in Thirty-Six (36) equal
monthly installments of principal, plus all accrued interest,
beginning on the Payment Date of the month following Equipment
Availability End Date No. 2 and ending on the Equipment Maturity Date
No. 2. Equipment Advances, once repaid, may not be reborrowed.
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(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Eastern
time one (1) Business Day before the day on which the Equipment
Advance is to be made. Such notice shall be substantially in the form
of Exhibit B. The notice shall be signed by a Responsible Officer or
its designee and include a copy of the invoice for the Equipment to be
financed.
2.2. Overadvances. If, at any time or for any reason, the amount of
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Obligations owed by Borrower to Bank pursuant to Section 2.1.1 plus, prior to
the Debt Service Coverage Event, Section 2.1.2, is greater than the Borrowing
Base, Borrower shall immediately pay to Bank, in cash, the amount of such excess
(the "Overadvance").
2.3. Interest Rates, Payments, and Calculations.
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(a) Interest Rate. Except as set forth in Section 2.3(b), any
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Advances under the Committed Revolving Line shall bear interest, on
the average daily balance thereof, at a per annum rate equal to: (i)
One Half of One percent (0.5%) above the Prime Rate prior to the Debt
Service Coverage Event, and (ii) the Prime Rate beginning on the date
which is the Debt Service Coverage Event.
(b) Default Rate. All Obligations shall bear interest, from and
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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
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each Payment Date. Borrower hereby authorizes Bank to debit any
accounts with Bank, including, without limitation, Account Number
_____________________ for payments of principal and interest due on
the Obligations and any other amounts owing by Borrower to Bank. Bank
will notify Borrower of all debits which Bank has made against
Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. 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. All amounts borrowed hereunder together with all interest,
fees or other amounts due by Borrower to Bank may be repaid or prepaid
to Bank in whole or in part prior to the Maturity Date without the
imposition of any fee, penalty or cost to Borrower.
(d) Computation. In the event the Prime Rate is changed from time
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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,
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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
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Bank of any wire transfer of funds, check, or other item of payment, whether
directed to Borrower's deposit account with Bank or to the Obligations or
otherwise, shall be immediately applied to conditionally reduce Obligations, but
shall not be considered a payment in respect of the Obligations 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 Eastern 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) Committed Revolving Line Facility Fee. A Committed Revolving
-------------------------------------
Line Facility Fee equal to Fifteen Thousand Dollars ($15,000.00),
which fee shall be due on the Closing Date and shall be fully earned
and non-refundable;
(b) Committed Equipment Line Facility Fee. A Committed Equipment
--------------------------------------
Line Facility Fee equal to: (i) Five Thousand Dollars ($5,000.00),
which fee shall be due on the Closing Date and shall be fully earned
and non-refundable, plus (ii) Two Thousand Five Hundred Dollars
($2,500.00), which fee shall be due upon the initial Equipment Advance
under the Equipment Line No. 2 and shall be fully earned at such time
and non-refundable;
(c) Financial Examination and Appraisal Fees. Bank's customary
-----------------------------------------
fees and out-of-pocket expenses for Bank's semi-annual audits of
Borrower's Accounts, appraisals of Collateral and financial analysis
and examination of Borrower performed by Bank or its agents;
(d) Bank Expenses. Upon demand from Bank, including, without
--------------
limitation, upon the date hereof, all Bank Expenses incurred through
the date hereof, 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.
2.6. Additional Costs. In case 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):
(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);
-14-
(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,
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.
2.7. Term. Except as otherwise set forth herein, 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 Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, 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 Credit Extension. The obligation of
---- ------------------------------------------------
Bank to make the initial Credit Extension 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
articles, bylaws, incumbency and resolutions authorizing the execution
and delivery of this Agreement;
(c) an Intellectual Property Security Agreement;
(d) an opinion of Borrower's counsel;
(e) guaranties by the Guarantors;
(f) financing statements (Forms UCC-1);
(g) insurance certificate;
(h) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(i) Certificates of Good Standing and Foreign Qualification; and
(j) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
-15-
3.2. Conditions Precedent to all Credit Extensions. The obligation of Bank
---- ---------------------------------------------
to make each Credit Extension, including the initial Credit Extension, 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
Credit Extension 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 Credit Extension. The making of each Credit Extension
shall be deemed to be a representation and warranty by Borrower on the
date of such Credit Extension as to the accuracy of the facts referred
to in this Section 3.2(b).
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 payment 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. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
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:
-16-
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/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.
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. To the best of Borrower's knowledge, the
---- ----------------------------
Eligible Accounts are bona fide existing obligations. The service or property
giving rise to such Eligible Accounts has been performed or delivered in all
material respects to the account debtor or to the account debtor's agent for
immediate shipment to the account debtor. Borrower has not received notice of
actual or imminent Insolvency Proceeding of any account debtor whose accounts
are included in any Borrowing Base Certificate as an Eligible Account.
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 licenses granted by Borrower to its customers in
the ordinary course of business. 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 known to Borrower has been made
in writing that alleges that any part of the Intellectual Property Collateral
violates the rights of any third party. Except for and upon the filing (i) with
the United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights and
Mask Works, and (ii) with appropriate state authority, UCC-1 Financing
Statements necessary to perfect the intellectual property 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 intellectual property
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 under this
Section 5.6.
5.7. Name; Location of Chief Executive Office. Except as disclosed in the
---- ----------------------------------------
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice
-17-
to Bank do 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, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect on Borrower or a material
adverse effect on Bank's security interest in the Collateral.
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 on or about the Closing Date.
5.10. Solvency. 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 its 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 in any material respect any
statutes, laws, ordinances or rules applicable to it, violation of which could
have a Material Adverse Effect.
5.12. Environmental Condition. To the best of Borrower's knowledge, 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
-18-
action or omission by Borrower or any Subsidiary resulting in the release, or
other disposition 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 on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith by proper proceedings with adequate reserves
under GAAP.
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 where
the failure to take such actions would have a Material Adverse Effect.
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
a Credit Extension 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 forty-five (45) days
after the end of each quarter, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such period,
in a form and certified by an officer of Borrower
-19-
reasonably acceptable to Bank; (b) as soon as available, but in any event within
thirty (30) days after the end of each month, a company prepared consolidated
revenue and expense statement covering Borrower's consolidated operations during
such period, in form reasonably acceptable to Bank; (c) as soon as available,
but in any event within ninety (90) 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; (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; (e) prompt notice of
any material change in the composition of the Intellectual Property Collateral,
including, but not limited to, any subsequent ownership right of the Borrower in
or to any Copyright, Patent or Trademark not specified in any intellectual
property security agreement between Borrower and Bank or knowledge of an event
other than information that is publicly available and applicable generally to
Borrower's business practices and industry that materially adversely effects the
value of the Intellectual Property Collateral; and (f) 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.
Within forty-five (45) days after the last day of each quarter, Borrower
shall deliver to Bank with the quarterly 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 six (6) months unless an Event of Default has occurred and
is continuing.
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. Except with
respect to the Borrower's ordinary course of business or standard warranty
provisions, 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
-20-
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 with respect to the foregoing if (i) the amount or validity of such
payment is contested in good faith by appropriate proceedings, (ii) Borrower or
Subsidiary, as the case may be, has established proper reserves (to the extent
required by GAAP) and (iii) no lien other than a Permitted Lien results.
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 are 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. At 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.
6.7. Principal Depository. Borrower shall maintain its principal depository
---- ---------------------
and operating accounts with Bank.
6.8. Quick Ratio. Borrower shall maintain, measured as of the last day of
---- ------------
each quarter, a ratio of Quick Assets to Current Liabilities of at least 0.75 to
1.0.
6.9. Tangible Net Worth. Borrower shall maintain, measured as of the last
---- -------------------
day of each quarter, a Tangible Net Worth of not less than: (i) Twenty Nine
Million Dollars ($29,000,000.00) as of the last day of the quarter ending
September 30, 1998; and (ii) Twenty-Eight Million Five Hundred Thousand Dollars
($28,500,000.00) as of the last day of each calendar quarter thereafter.
6.10. Debt-Net Worth Ratio. Borrower shall maintain, measured as of the
----- ---------------------
last day of each quarter, a ratio of Total Liabilities to Tangible Net Worth of
not greater than 0.80 to 1.0.
6.11. Profitability. Borrower shall maintain, measured as of the last day
----- --------------
of each quarter: (i) a maximum net loss of One Million Five Hundred Thousand
Dollars ($1,500,000.00)
-21-
as of the last day of the third quarter of 1998; (ii) a maximum net loss of One
Million Dollars ($1,000,000.00) as of the last day of the fourth quarter of
1998; and (iii) a profit for each quarter commencing with the first quarter of
Borrower's fiscal year 1999 with an allowance for one quarterly loss during such
fiscal year of no greater than Two Hundred Fifty Thousand Dollars ($250,000.00).
6.12. Debt Service Coverage Ratio. Beginning with the last day of the first
----- ----------------------------
quarter following the Debt Service Coverage Event, Borrower shall maintain,
measured as of the last day of each quarter, a Debt Service Coverage Ratio of
1.50 to 1.0.
6.13. Registration of Intellectual Property Rights.
----- --------------------------------------------
(a) Borrower shall, in its discretion, and in accordance with
normal business practices, 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, in its discretion, and in
accordance with normal business practices, 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. Notwithstanding the foregoing,
upon the occurrence of an Event of Default, the Bank may require, in
its discretion, that Borrower register or cause to be registered with
the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, any intellectual property rights
developed or acquired by Borrower, 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) in its sole discretion, protect, defend
and maintain the validity and enforceability of the Trademarks,
Patents, Copyrights, and Mask Works, (ii) use its best efforts to
detect infringements of the Trademarks, Patents, Copyrights and Mask
Works and promptly advise Bank in writing of material infringements
detected and (iii) not allow any Trademarks, Patents, Copyrights, or
Mask Works to be abandoned, forfeited or dedicated to the public
without written notice to Bank; provided, however, that the decision
to abandon, forfeit or dedicate to the public such assets shall be
solely within the discretion of the Borrower.
(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 6.13 to take but which Borrower fails to take,
after fifteen (15) days' notice to Borrower. Borrower shall reimburse
-22-
and indemnify Bank for all reasonable costs and reasonable expenses
incurred in the reasonable exercise of its rights under this Section
6.13.
6.14. 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 Extension 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:
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 Transfers: (i) of inventory
in the ordinary course of business, (ii) of licenses and similar arrangements
for the use of the property of Borrower or its Subsidiaries in the ordinary
course of business; (iii) that constitute payment of normal and usual operating
expenses in the ordinary course of business; or (iv) of worn-out or obsolete
Equipment.
7.2. Changes in Business, Ownership, or Management, Business Locations.
---- ------------------------------------------------------------------
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 or management. Borrower will
not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations.
7.3. Mergers or Acquisitions. Prior to the Termination Date, 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.
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 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.
-23-
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, except to
the extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgement.
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 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.
7.11. Inventory. Store more than ten percent of the book value of the
----- ---------
Inventory with a bailee, warehouseman, or similar party unless Bank has received
a pledge of any warehouse receipt covering such Inventory. Except for Inventory
sold 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
locations 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" or a 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 other 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, when due, any of the
---- ---------------
Obligations.
8.2. Covenant Default.
---- ----------------
-24-
(a) If Borrower fails to perform any obligation under Sections
6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12 or 6.13 or violates any of
the covenants contained in Article 7 of this Agreement and such
failure is not cured within thirty (30) days with respect to
Borrower's obligations under Section 6.7 and 6.13; or
(b) If Borrower 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
twenty (20) days after the occurrence thereof; provided, however, that
if the default cannot by its nature be cured within the twenty (20)
day period or cannot after diligent attempts by Borrower be cured
within such twenty (20) 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 Advances will be required to be
made during such cure period);
8.3. Material Adverse Change. If there (i) occurs a material adverse change
---- ------------------------
in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations as the same shall become due or (iii) is 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 Credit Extensions 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 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
-25-
8.6. Other Agreements. If there is a default in any agreement to which
---- ----------------
Borrower is a party with a third party or parties resulting in the acceleration
of the maturity of any Indebtedness in an amount in excess of Two Hundred Fifty
Thousand Dollars ($250,000) or 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;
8.8. Judgments. If a judgment or judgments for the payment of money in an
---- ---------
amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand
Dollars ($250,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or
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 or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
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 reasonably 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
-26-
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's
premises, Borrower hereby grants Bank a license to enter such premises
and to occupy the same, without charge;
(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 non-exclusive,
royalty-free license or other right, solely for the purposes of
exercising Bank's rights hereunder, to use, without charge, Borrower's
labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising
matter, or any 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 the
proceeds thereof to the Obligations in whatever manner or order it
deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
(j) 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.
9.2. 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; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon
-27-
terms which Bank determines to be reasonable; (f) 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, Exhibit C, and Exhibit D,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents, Trademarks, or Mask Works in which Borrower no longer
has or claims any right, title or interest; (g) 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. 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. Upon the occurrence and during the continuance of
---- --------------------
an Event of Default, 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 if requested or required by Bank,
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
Committed Revolving Line 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.
9.5. 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, unless the same is due to Bank's gross negligence or willful
misconduct, 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, unless the same is due to Bank's
gross negligence or willful misconduct, shall be borne by Borrower.
-28-
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 expressly set forth herein 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.
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, by 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 SeaChange International, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Chief Financial Officer
FAX: _______________________
with a copy to ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
High Street - 20th Floor
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
-29-
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 WAIVER
--- ------------------------------------
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA ▇▇▇▇▇ COUNTY, 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.
12.2. Indemnification. Borrower shall , indemnify ,defend, protect 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 the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered,
-30-
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 the Loan Documents, 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 except by a writing signed by Borrower and Bank. 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; provided that so
long as the obligations referred to in the first sentence of this Section 12.7
have been satisfied, and Bank has no commitment to make any Credit Extensions or
to make any other loans to Borrower, Bank shall release all security interests
granted hereunder and redeliver all Collateral held by it in accordance with
applicable law.
12.8. Confidentiality. In handling any confidential information Bank shall
----- ----------------
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as Bank may deem
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or
-31-
possession of Bank when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank
by a third party, provided Bank does not have actual knowledge that such third
party is prohibited from disclosing such information.
12.9. Countersignature. This Agreement shall become effective only when it
----- -----------------
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
SEACHANGE INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
_________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
_______________________________
Title: Chief Financial Officer
________________________________
SILICON VALLEY BANK, d/b/a SILICON VALLEY EAST
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
_________________________________
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
_______________________________
Title: Senior Vice President
________________________________
SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇ Fepty
_________________________________
Name: ▇▇▇▇▇ Fepty
_______________________________
Title: Loan Documentation Officer
________________________________
(Signed in Santa ▇▇▇▇▇ County, California)
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower in and
to the following:
(a) 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;
(b) 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;
(c) 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;
(d) 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;
(e) All documents, cash, deposit accounts, securities, investment property,
letters of credit, certificates of deposit, instruments and chattel paper
now owned or hereafter acquired and Borrower's Books relating to the
foregoing;
(f) 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
Including, without limitation, all items listed on Rider 1 attached hereto and
-------
made a part hereof.
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
------------------------------
FAX#: (408) TIME:
------------------------- ------------------------------
FROM: SEACHANGE INTERNATIONAL, INC
--------------------------------------------------------------------------
BORROWER'S NAME
FROM:
--------------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
--------------------------------------------------------------------------------
AUTHORIZED SIGNATURE
PHONE:
-------------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT#
----------------------- -----------------------------
--------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
--------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
--------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
------------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
-------------------------
Authorized Requester
-----------------------------------
Authorized Signature (Bank)
Phone #
---------------------------
--------------------------------------------------------------------------------
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: SEACHANGE INTERNATIONAL, INC. Bank: Silicon Valley Bank
Commitment Amount: $6,000,000.00
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $
--------------
2. Additions (please explain on reverse) $
--------------
3. TOTAL ACCOUNTS RECEIVABLE $
--------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
--------------
5. Balance of 50% over 90 day accounts $
--------------
6. Concentration Limits $
--------------
7. Foreign Accounts $
--------------
8. Governmental Accounts $
--------------
9. Contra Accounts $
--------------
10. Promotion or Demo Accounts $
--------------
11. Intercompany/Employee Accounts $
--------------
12. Other (please explain on reverse) $
--------------
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
--------------
14. Eligible Accounts (#3 minus #13) $
--------------
15. Eligible Foreign Accounts $
--------------
16. Approved Foreign Accounts $
--------------
17. LOAN VALUE OF ALL ACCOUNTS (80% of #14,
plus 90% of #15, plus a Bank determined
percentage of #16) $
--------------
BALANCES
18. Maximum Loan Amount $
--------------
19. Total Funds Available (Lesser of #18
or #17) $
--------------
20. Present balance owing on Line of Credit $
--------------
21. Outstanding under Committed Equipment Line
[only prior to Debt Service Coverage Event] $
--------------
22. RESERVE POSITION (#19 minus #20 and #21) $
--------------
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
--------------------------------
BANK USE ONLY
Received By:
--------------------
Date:
---------------------------
Reviewed By:
--------------------
Compliance Status: Yes / No
--------------------------------
-------------------------------------
By:
----------------------------------
Authorized Signer
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: SEACHANGE INTERNATIONAL, INC.
The undersigned authorized officer of SEACHANGE INTERNATIONAL, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that such compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
REPORTING COVENANT Required Complies
------------------ -------- --------
Financial statements & CC Quarterly within 45 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
BBC & A/R Agings Monthly within 20 days Yes No
Monthly Revenue and Expense Monthly within 30 days Yes No
FINANCIAL COVENANT Required Actual Complies
------------------ -------- ------ --------
Maintain on a Quarterly Basis:
Minimum Quick Ratio 0.75:1.0 ____:1.0 Yes No
Minimum Tangible Net Worth $29,000,000 for 9/30/98;
$28,500,000 thereafter $___________ Yes No
Maximum Debt-Net Worth 0.80:1.0 _____:1.0 Yes No
Profitability ($1,500,000) for third
quarter 1998; ($1,000,000)
for fourth quarter 1998; and
profitable on quarterly basis
in FY 1999 with allowance for
one quarterly loss of up to
$250,000 $__________ Yes No
Minimum Debt Service 1.5:1.0 (commencing ______:1.0 Yes No
Coverage Ratio after DSC Event)
Comments Regarding Exceptions:
---------------------------------
BANK USE ONLY
Received By:____________________
Date:________________
Reviewed By:____________________
Compliance Status: Yes / No
---------------------------------
Sincerely,
Date:
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Signature
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Title