EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (together with any schedule, annex, or
exhibit attached hereto, as the same may be amended, restated, or otherwise
modified, this "Agreement") is entered into on August 15, 2005 (the "Effective
Date") between SILICON VALLEY BANK ("Bank"), whose address is ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and FIBERSTARS, INC., a California corporation
("Borrower"), whose chief executive office is ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Borrower's Address"). (Definitions of capitalized terms used
in this Agreement are set forth in Section 8 below.)
1. ADVANCES.
1.1 Advances. Subject to the conditions in Section 1.1 of the
Schedule and to deduction of Reserves, Bank will make advances (collectively,
the "Advances") to Borrower up to the amounts shown on the Schedule.
1.2 Interest. All Obligations shall bear interest at the rate shown
on the Schedule, except where expressly set forth to the contrary in this
Agreement. Interest shall be payable monthly, in arrears, on the last day of the
month. Interest shall be charged to a deposit account with Bank designated by
Borrower, or if no funds are available in any such deposit account, as a Credit
Extension under this Agreement.
1.3 Overadvances. If at any time or for any reason the total of all
outstanding Credit Extensions and all other monetary Obligations exceeds the
Credit Limit, Borrower shall immediately pay the amount of the excess to Bank
(the "Overadvance"), without notice or demand. Without limiting Borrower's
obligation to repay to Bank the amount of any Overadvance, Borrower agrees to
pay Bank interest on the outstanding amount of any Overadvance, on demand, at
the Default Rate.
1.4 Fees. Borrower shall pay Bank the fees shown on the Schedule,
which are in addition to all interest and other sums payable to Bank and is not
refundable.
1.5 Credit Extension Requests. To obtain a Credit Extension,
Borrower shall make a request to Bank by facsimile or telephone. Credit
Extension requests received after 12:00 Noon Pacific time will not be considered
by Bank until the next Business Day. Bank may rely on any telephone request for
a Credit Extension given by a person whom Bank reasonably believes is an
authorized representative of Borrower, and Borrower will indemnify Bank for any
loss Bank suffers as a result of that reliance.
1.6 Letters of Credit. At the request of Borrower, Bank may, in its
good faith business judgment, issue or arrange for the issuance of letters of
credit for the account of Borrower, in each case in form and substance
satisfactory to Bank in its sole discretion (collectively, "Letters of Credit").
The aggregate face amount of all Letters of Credit from time to time outstanding
shall not exceed the amount shown on the Schedule (the "Letter of Credit
Sublimit"), and shall be reserved against Loans which would otherwise be
available hereunder, and in the event at any time there are insufficient Loans
available to Borrower for such reserve, Borrower shall deposit and maintain with
Bank cash collateral in an amount at all times equal to such deficiency, which
shall be held as Collateral for all purposes of this Agreement.
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Borrower shall pay all bank charges (including charges of Bank) for the issuance
of Letters of Credit, together with such additional fee as Bank's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Bank under or in connection with a Letter of Credit shall
constitute a Loan hereunder on the date such payment is made. Each Letter of
Credit shall have an expiry date no later than thirty days prior to the Maturity
Date. Borrower hereby agrees to indemnify and hold Bank harmless from any loss,
cost, expense, or liability, including payments made by Bank, expenses, and
reasonable attorneys' fees incurred by Bank arising out of or in connection with
any Letters of Credit. Borrower agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Bank and
opened for Borrower's account or by Bank's interpretations of any Letter of
Credit issued by Bank for Borrower's account, and Borrower understands and
agrees that Bank shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower's instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that Letters of Credit may require
Bank to indemnify the issuing bank for certain costs or liabilities arising out
of claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify and hold Bank harmless with respect to any loss, cost, expense, or
liability incurred by Bank under any Letter of Credit as a result of Bank's
indemnification of any such issuing bank. The provisions of this Loan Agreement,
as it pertains to Letters of Credit, and any other Loan Documents relating to
Letters of Credit are cumulative.
2. SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Bank a security interest in all
of the following (collectively, the "Collateral"): all right, title and interest
of Borrower in and to all of the following, whether now owned or hereafter
arising or acquired and wherever located: all Accounts; all Inventory; all
Equipment; all Deposit Accounts; all General Intangibles (including without
limitation all Intellectual Property); all Investment Property; all Other
Property; and any and all claims, rights and interests in any of the above, and
all guaranties and security for any of the above, and all substitutions and
replacements for, additions, accessions, attachments, accessories, and
improvements to, and proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties) of, any and all of the
above, and all Borrower's books relating to any and all of the above.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
In order to induce Bank to enter into this Agreement and to make Credit
Extensions, and except to the extent set forth in the Representations, Borrower
represents and warrants to Bank as follows, and Borrower covenants that the
following representations will continue to be true at all times, and that
Borrower will at all times comply with all of the following covenants,
throughout the term of this Agreement and until all Obligations have been paid
and performed in full:
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3.1 Corporate Existence and Authority. Borrower is and will continue
to be, duly organized, validly existing and in good standing under the laws of
the State of California. Borrower is and will continue to be qualified and
licensed to do business in California, and all jurisdictions in which any
failure to do so would result in a Material Adverse Change. The execution,
delivery and performance by Borrower of this Agreement, and all other documents
contemplated hereby (a) have been duly and validly authorized, (b) are
enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (c) do not violate Borrower's Certificate of Incorporation,
or Borrower's by-laws, or any law or any material agreement or instrument which
is binding upon Borrower or its property, and (d) do not constitute grounds for
acceleration of any material indebtedness or obligation under any agreement or
instrument which is binding upon Borrower or its property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in
the heading to this Agreement, or such other name of which it has notified Bank
in accordance with this Section 3.2, is its correct name. Listed in the
Representations are all prior names of Borrower and all of Borrower's present
and prior trade names. Borrower shall give Bank thirty (30) days prior written
notice before changing its name or doing business under any other name. Borrower
has complied, and will in the future comply, in all material respects, with all
laws relating to the conduct of business under a fictitious business name,
except where the failure to so comply would not reasonably be expected to result
in a Material Adverse Change.
3.3 Place of Business; Location of Collateral. The address set forth
in the heading to this Agreement as Borrower's address (or such other address of
which Borrower has given Bank notice pursuant to this Section 3.3) is Borrower's
chief executive office. In addition, Borrower has places of business and
Collateral is located only at the locations set forth in the Representations (or
such other locations of which Borrower has given or will give Bank notice
pursuant to this Section 3.3). Borrower will give Bank at least thirty (30) days
prior written notice before opening any additional place of business, changing
its chief executive office or state of incorporation, or moving any of the
Collateral to a location other than Borrower's Address or one of the locations
set forth in the Representations, except that Borrower may maintain sales
offices in the ordinary course of business at which not more than a total of
$50,000 fair market value of Equipment is located.
3.4 Title to Collateral; Perfection; Permitted Liens.
(a) Borrower is now, and will at all times in the future be,
the sole owner of all the Collateral, except for items of Equipment which are
leased or licensed to Borrower. The Collateral now is and will remain free and
clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens. Bank now has, and will continue to
have, a first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Bank and the Collateral against all claims of others.
(b) Borrower has set forth in the Representations all of
Borrower's deposit accounts, securities accounts, and commodity accounts
(collectively, "Collateral Accounts"). Borrower will give Bank five (5) Business
Days advance written notice before establishing any new Collateral Account with
a bank or financial institution other than Bank and will cause the entity where
any such new Collateral Account is maintained to execute and deliver to Bank a
control agreement to perfect Bank's security interest in the Collateral Account
and otherwise satisfactory to Bank in its good faith business judgment. Nothing
herein limits any requirements which may be set forth in the Schedule as to
where Collateral Accounts will be maintained.
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(c) In the event that Borrower shall at any time after the
date hereof have any commercial tort claims against others, which it is
asserting, and in which the potential recovery exceeds $100,000, Borrower shall
promptly notify Bank thereof in writing and provide Bank with such information
regarding the same as Bank shall request (unless providing such information
would waive the Borrower's attorney-client privilege). Such notification to Bank
shall constitute a grant of a security interest in the commercial tort claim and
all proceeds thereof to Bank, and Borrower shall execute and deliver all such
documents and take all such actions as Bank shall request in connection
therewith.
(d) None of the Collateral now is or will be affixed to any
real property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral and
no such lease now prohibits, restrains, impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party has an
interest, Borrower shall, whenever requested by Bank, use its best efforts to
cause such third party to execute and deliver to Bank, in form acceptable to
Bank, such waivers and subordinations as Bank shall specify in its good faith
business judgment. In the event that such waivers and subordinations are not
obtained, Bank may, in its discretion, establish appropriate reserves against
the Borrowing Base. Borrower will keep in full force and effect, and will comply
with all material terms of, any lease of real property where any of the
Collateral now or in the future may be located.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral
in good working condition (ordinary wear and tear excepted), and Borrower will
not use the Collateral for any unlawful purpose. Borrower will promptly advise
Bank in writing of any material loss or damage to the Collateral.
3.6 Books and Records. Borrower has maintained and will maintain at
Borrower's Address books and records sufficient to prepare financial statements
in accordance with GAAP.
3.7 Financial Condition, Statements and Reports. All financial
statements of Borrower and it consolidated Subsidiaries now or in the future
delivered to Bank have been, and will be, prepared in conformity with GAAP and
now and in the future will fairly present the results of operations and
financial condition of Borrower and its consolidated Subsidiaries, in accordance
with GAAP, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Bank and the date hereof, there
has been no Material Adverse Change.
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3.8 Tax Returns and Payments; Pension Contributions. Borrower has
timely filed, and will timely file, all required tax returns and reports, and
Borrower has timely paid, and will timely pay, all foreign, federal, state and
local taxes, assessments, deposits and contributions now or in the future owed
by Borrower. Notwithstanding the foregoing, Borrower may defer payment of any
contested taxes, provided that Borrower (a) in good faith contests Borrower's
obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (b) notifies Bank in writing of the commencement of,
and any material development in, the proceedings, and (c) posts bonds or takes
any other steps required to keep the contested taxes from becoming a lien upon
any of the Collateral. Borrower is unaware of any claims or adjustments proposed
for any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall continue to
pay all amounts necessary to fund all present and future pension, profit sharing
and deferred compensation plans in accordance with their terms, and Borrower has
not and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.
3.9 Compliance with Law. Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations applicable to Borrower,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 Litigation. There is no claim, suit, litigation, proceeding or
investigation pending or (to the best of Borrower's knowledge) threatened
against Borrower in any court or before any governmental agency which could
reasonably be expected to result, either separately or in the aggregate, in any
Material Adverse Change. Borrower will promptly inform Bank in writing of any
claim, proceeding, litigation or investigation in the future threatened in
writing or instituted against Borrower involving any single claim that can
reasonably be expected to result in liability in excess of $50,000, or $100,000
in the aggregate.
3.11 Use of Proceeds. The Credit Extensions shall be used solely for
working capital and other general business requirements of Borrower. Borrower is
not purchasing or carrying any "margin stock" (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds of
any Credit Extension will be used to purchase or carry any "margin stock" or to
extend credit to others for the purpose of purchasing or carrying any "margin
stock," in either case in violation of Regulation U.
4. ACCOUNTS.
4.1 Representations Relating to Accounts. Borrower represents and
warrants to Bank as follows: Each Account with respect to which Advances are
requested by Borrower shall, on the date each Advance is requested and made, (a)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, or the non-exclusive licensing of Intellectual Property,
in the ordinary course of Borrower's business, and (b) meet the Minimum
Eligibility Requirements set forth in Section 8 below.
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4.2 Representations Relating to Documents and Legal Compliance.
Borrower represents and warrants to Bank as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Accounts are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Account shall comply in all
material respects with all applicable laws and governmental rules and
regulations. To the best of Borrower's knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Accounts are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and by equitable principles (regardless of whether
enforcement is sought in equity or at law).
4.3 Schedules and Documents relating to Accounts. Borrower shall
deliver to Bank transaction reports and schedules of collections, as provided in
the Schedule, on Bank's standard forms; provided, however, that Borrower's
failure to execute and deliver the same shall not affect or limit Bank's
security interest and other rights in all of Borrower's Accounts, nor shall
Bank's failure to advance or lend against a specific Account affect or limit
Bank's security interest and other rights therein. If requested by Bank,
Borrower shall furnish Bank with copies (or, at Bank's request, originals) of
all contracts, orders, invoices, and other similar documents, and all shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Accounts, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Bank an aged accounts receivable trial balance as
provided in the Schedule. In addition, Borrower shall deliver to Bank, on its
request, the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any Accounts,
in the same form as received, with all necessary endorsements, and copies of all
credit memos.
4.4 Collection of Accounts. Borrower shall have the right to collect
all Accounts, unless and until a Default or an Event of Default has occurred and
is continuing. Whether or not an Event of Default has occurred and is
continuing, Borrower shall hold all payments on, and proceeds of, Accounts in
trust for Bank, and Borrower shall immediately deliver all such payments and
proceeds to Bank in their original form, duly endorsed, to be applied to the
Obligations in such order as Bank shall determine. So long as Obligations are
outstanding, Borrower shall deposit all proceeds of Collateral into a lockbox
account, or such other "blocked account" as Bank may specify, pursuant to a
blocked account agreement in such form as Bank may specify in its good faith
business judgment.
4.5 Remittance of Proceeds. All proceeds arising from the
disposition of any Collateral shall be delivered, in kind, by Borrower to Bank
in the original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Bank shall determine; provided that, if no Default or Event of Default
has occurred and is continuing, Borrower shall not be obligated to remit to Bank
the proceeds of the sale of property the Transfer of which is permitted by
Section 5.5(c) hereof. Borrower agrees that it will not commingle proceeds of
Collateral with any of Borrower's other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for Bank. Nothing in this Section limits the restrictions on disposition
of Collateral set forth elsewhere in this Agreement.
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4.6 Disputes. Borrower shall notify Bank promptly of all disputes or
claims relating to Accounts. Borrower shall not forgive (completely or
partially), compromise or settle any Account for less than payment in full, or
agree to do any of the foregoing, except that Borrower may do so, provided that:
(a) Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to Bank on the regular reports provided to Bank; (b) no Default or
Event of Default has occurred and is continuing; and (c) taking into account all
such discounts, settlements and forgiveness, the total outstanding Credit
Extensions will not exceed the Credit Limit.
4.7 Returns. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower, Borrower
shall promptly determine the reason for such return and, unless such return is
disputed by Borrower or unless such return is immediately replaced by Borrower,
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence and during
the continuance of any Event of Default, Borrower shall hold the returned
Inventory in trust for Bank, and immediately notify Bank of the return of the
Inventory.
4.8 Verification. Bank may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Accounts, by means of mail, telephone or otherwise, either in the name of
Borrower or Bank or such other name as Bank may choose.
4.9 No Liability. Bank shall not be responsible or liable for any
shortage or discrepancy in, damage to, or loss or destruction of, any goods, the
sale or other disposition of which gives rise to an Account, or for any error,
act, omission, or delay of any kind occurring in the settlement, failure to
settle, collection or failure to collect any Account, or for settling any
Account in good faith for less than the full amount thereof, nor shall Bank be
deemed to be responsible for any of Borrower's obligations under any contract or
agreement giving rise to an Account. Nothing herein shall, however, relieve Bank
from liability for its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF BORROWER.
5.1 Financial and Other Covenants. Borrower shall at all times
comply with the financial and other covenants set forth in the Schedule.
5.2 Insurance. Borrower shall, at all times insure all of the
tangible personal property Collateral and carry such other business insurance,
with insurers reasonably acceptable to Bank, in such form and amounts as Bank
may reasonably require and that are customary and in accordance with standard
practices for Borrower's industry and locations, and Borrower shall provide
evidence of such insurance to Bank. All casualty insurance policies shall name
Bank as loss payee and shall contain a lenders loss payee endorsement in form
reasonably acceptable to Bank. All policies of liability insurance shall name
Bank as an additional insured. Upon receipt of the proceeds of any such
insurance, Bank shall apply such proceeds in reduction of the Obligations as
Bank shall determine in its good faith business judgment, except that, provided
no Default or Event of Default has occurred and is continuing, Bank shall
release to Borrower casualty insurance proceeds totaling less than $100,000,
which shall be utilized by Borrower for the replacement of the property with
respect to which the insurance proceeds were paid. Bank may require reasonable
assurance that the insurance proceeds so released will be so used. If Borrower
fails to provide or pay for any insurance, Bank may, but is not obligated to,
obtain the same at Borrower's expense. Borrower shall promptly deliver to Bank
copies of all material reports made to insurance companies.
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5.3 Reports. Borrower, at its expense, shall provide Bank with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Bank shall from time to time reasonably
specify in its good faith business judgment.
5.4 Access to Collateral, Books and Records. At reasonable times,
and on one (1) Business Day's notice, Bank, or its agents, shall have the right
to inspect the Collateral and the right to audit and copy Borrower's books and
records. After the initial inspection and audit, such inspections and audits
shall occur at least three times per year so long as Advances are outstanding,
otherwise only prior to the first Advance. Bank shall take reasonable steps to
keep confidential all information obtained in any such inspection or audit, but
Bank shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The foregoing inspections and audits shall be at Borrower's expense and
the charge therefor shall be $750 per person per day (or such higher amount as
shall represent Bank's then current standard charge for the same), plus
reasonable out-of-pocket expenses; provided that so long as no Event of Default
has occurred and is continuing and Borrower requests Credit Extensions
regularly. Borrower shall not be required to pay such expenses more than three
times per fiscal year. Audits following termination of the Streamline Option
shall be at Borrower's expense. In the event Borrower and Bank schedule an
inspection or audit more than ten (10) days in advance, and Borrower seeks to
reschedule the inspection or audit with less than ten (10) days written notice
to Bank, then (without limiting any of Bank's rights or remedies), Borrower
shall pay Bank a cancellation fee of $1,000 plus any out-of-pocket expenses
incurred by Bank, to compensate Bank for the anticipated costs and expenses of
the cancellation.
5.5 Negative Covenants. Except as may be permitted in the Schedule,
Borrower shall not, and shall not permit any Subsidiary to, without Bank's prior
written consent (which shall be a matter of its good faith business judgment),
do any of the following:
(a) merge or consolidate with another corporation or entity
(except that a Subsidiary may merge or consolidate with or into another
Subsidiary or Borrower); or acquire all or substantially all of the capital
stock or property of a Person other than a Subsidiary;
(b) enter into any material transaction with any Affiliate
of Borrower except for (i) transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms (when viewed in the context
of any series of transactions of which it may be a part, if applicable); and
(ii) transactions permitted under Sections 5.5(f) or (i);
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(c) convey, sell, lease, transfer or otherwise dispose of
(collectively "Transfer") all or any part of its business or property, except
for:
(i) sales of Inventory in the ordinary course of
business;
(ii) dispositions of obsolete, damaged or worn-out
Equipment in the ordinary course of business; and
(iii) non-exclusive licensing of Intellectual Property
in the ordinary course of business;
(d) without prior written notice to Bank, store any
Inventory or other Collateral with any warehouseman or other third party not
specified in the Representations or otherwise consented to in writing by Bank;
(e) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(f) make any loans of any money or other assets except for
Permitted Investments;
(g) incur any Indebtedness, other than Permitted
Indebtedness;
(h) guarantee or otherwise become liable with respect to the
obligations of another party or entity other than Permitted Indebtedness;
(i) pay or declare any dividends on stock or redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's stock
except for Permitted Distributions;
(j) permit, vote in favor of, or enter into any agreement
that would result in, a Change of Control;
(k) engage, directly or indirectly, in any material line of
business other than those lines of business conducted by Borrower and its
Subsidiaries on the date hereof and any businesses reasonably related,
complementary or incidental thereto or reasonable extensions thereof; or
(l) with respect to Borrower only, dissolve or elect to
dissolve, or, without prior written notice to Bank pursuant to Section 3.3,
change its state of incorporation.
5.6 Litigation Cooperation. Should any third-party suit or
proceeding be instituted by or against Bank with respect to any Collateral or
relating to Borrower, Borrower shall, without expense to Bank, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Bank may deem them reasonably necessary in order to
prosecute or defend any such suit or proceeding.
5.7 Further Assurances. Borrower agrees, at its expense, on request
by Bank, to execute all documents and take all actions, as Bank, may, in its
good faith business judgment, deem necessary or useful in order to perfect and
maintain Bank's perfected first-priority security interest in the Collateral
(subject to Permitted Liens), and in order to fully consummate the transactions
contemplated by this Agreement.
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6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the
later to occur of payment in full of the Obligations or the Maturity Date
subject to Section 6.3 below.
6.2 Early Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Bank; or (b) by Bank at any time
after the occurrence and during the continuance of an Event of Default, without
notice, effective immediately. If this Agreement is terminated by Borrower or by
Bank under this Section 6.2, Borrower shall pay to Bank a termination fee in an
amount equal to one percent (1.0%) of the Maximum Credit Limit, provided that no
termination fee shall be charged if the credit facility hereunder is replaced
with a new facility from another division of Bank. The termination fee shall be
due and payable on the effective date of termination and thereafter shall bear
interest at a rate equal to the highest rate applicable to any of the
Obligations.
6.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Bank's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that Bank may, in its sole discretion,
refuse to make any further Credit Extensions after termination. No termination
shall in any way affect or impair any right or remedy of Bank, nor shall any
such termination relieve Borrower of any Obligation to Bank, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Bank shall
promptly terminate its financing statements with respect to the Borrower and
deliver to Borrower such other documents as may be required to fully terminate
Bank's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Bank immediate written notice thereof:
(a) any warranty, representation, statement, report or
certificate made or delivered to Bank by Borrower or any of Borrower's officers,
employees or agents, now or in the future, shall be untrue or misleading in any
material respect when made or deemed to be made;
(b) Borrower shall fail to pay (i) when due, any Credit
Extension or any interest thereon or (ii) within three (3) days after when due,
any other monetary Obligation, including any Overadvance;
(c) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule, or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured, or shall fail to
permit Bank to conduct an inspection or audit as specified in Section 5.4
hereof;
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(d) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within three (3) days after the date
performance was to be rendered;
(e) any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on a material part of the
Collateral which is not cured within ten (10) Business Days after the occurrence
of the same;
(f) any event of default occurs under any Indebtedness in
excess of $50,000 secured by a Permitted Lien, which is not cured within any
applicable cure period or waived in writing by the holder of the Permitted Lien;
(g) any event of default in other agreement between Borrower
and a third party that gives the third party the right to accelerate any
Indebtedness exceeding $50,000;
(h) dissolution, termination of existence or insolvency of
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of Indebtedness, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
(i) the commencement of any proceeding against Borrower
under any reorganization, bankruptcy, insolvency, arrangement, readjustment of
Indebtedness, dissolution or liquidation law or statute of any jurisdiction, now
or in the future in effect, which is not cured by the dismissal or stay thereof
within thirty (30) days after the date commenced;
(j) Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement, or if any Person
who has subordinated such indebtedness or obligations terminates or in any way
limits his subordination agreement;
(k) there shall be a Change in Control;
(l) Borrower shall generally not pay its debts as they
become due, or Borrower shall conceal, remove or transfer any part of its
property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or
(m) a Material Adverse Change shall occur. Bank may cease
making any Credit Extensions hereunder during any of the above cure periods and
thereafter if an Event of Default has occurred and is continuing.
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7.2 Remedies. Upon the occurrence and during the continuance of any
Event of Default, Bank, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) cease making Credit Extensions or otherwise extending
credit to Borrower under this Agreement or any other Loan Document; (b)
accelerate and declare all or any part of the Obligations to be immediately due,
payable, and performable, notwithstanding any deferred or installment payments
allowed by any instrument evidencing or relating to any Obligation; (c) take
possession of any or all of the Collateral wherever it may be found, and for
that purpose Borrower hereby authorizes Bank without judicial process to enter
onto any of Borrower's premises without interference to search for, take
possession of, keep, store, or remove any of the Collateral, and remain on the
premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge for so long as Bank deems it necessary, in its good
faith business judgment, in order to complete the enforcement of its rights
under this Agreement or any other agreement; provided, however, that should Bank
seek to take possession of any of the Collateral by court process, Borrower
hereby irrevocably waives: (i) any bond and any surety or security relating
thereto required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that Bank
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (d) require Borrower to assemble any or all of the Collateral
and make it available to Bank at places designated by Bank which are reasonably
convenient to Bank and Borrower, and to remove the Collateral to such locations
as Bank may deem advisable; (e) complete the processing, manufacturing or repair
of any Collateral prior to a disposition thereof and, for such purpose and for
the purpose of removal, Bank shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, and other Equipment and all other property
without charge; (f) sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Bank obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Bank shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Bank deems reasonable, or on Bank's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Bank may directly or
through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) demand payment
of, and collect any Accounts and General Intangibles comprising Collateral and,
in connection therewith, Borrower irrevocably authorizes Bank to endorse or sign
Borrower's name on all collections, receipts, instruments and other documents,
to take possession of and open mail addressed to Borrower and remove therefrom
payments made with respect to any item of the Collateral or proceeds thereof,
and, in Bank's good faith business judgment, to grant extensions of time to pay,
compromise claims and settle Accounts and the like for less than face value; (h)
offset against any sums in any of Borrower's general, special or other deposit
accounts with Bank against any or all of the Obligations; and (i) demand and
receive possession of any of Borrower's federal and state income tax returns and
the books and records utilized in the preparation thereof or referring thereto.
All reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by Bank with respect to the foregoing shall be added to and become part
of the Obligations, shall be due on demand, and shall bear interest at a rate
equal to the highest interest rate applicable to any of the Obligations. Without
limiting any of Bank's rights and remedies, from and after the occurrence and
during the continuance of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional five percent (5%) per annum
(the "Default Rate").
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7.3 Standards for Determining Commercial Reasonableness. Borrower
and Bank agree that a sale or other disposition (collectively, "Sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (a) notice of the sale is given to
Borrower at least ten days prior to the sale, and, in the case of a public sale,
notice of the sale is published at least five days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (b) notice of the sale describes the collateral in general,
non-specific terms; (c) the sale is conducted at a place designated by Bank,
with or without the Collateral being present; (d) the sale commences at any time
between 8:00 a.m. and 6:00 p.m; (e) payment of the purchase price in cash or by
cashier's check or wire transfer is required; and (f) with respect to any sale
of any of the Collateral, Bank may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Bank shall be free to employ other methods of
noticing and selling the Collateral, in its discretion, if they are commercially
reasonable.
7.4 Power of Attorney. Upon the occurrence and during the
continuance of any Event of Default, without limiting Bank's other rights and
remedies, Borrower grants to Bank an irrevocable power of attorney coupled with
an interest, authorizing and permitting Bank (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Bank agrees
that if it exercises any right hereunder, it will do so in good faith and in a
commercially reasonable manner: (a) execute on behalf of Borrower any documents
that Bank may, in its good faith business judgment, deem advisable in order to
perfect and maintain Bank's security interest in the Collateral, or in order to
exercise a right of Borrower or Bank, or in order to fully consummate all the
transactions contemplated under this Agreement, and all other Loan Documents;
(b) execute on behalf of Borrower, any invoices relating to any Account, any
draft against any Account Debtor and any notice to any Account Debtor, any proof
of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's
or other lien, or assignment or satisfaction of mechanic's, materialman's or
other lien; (c) take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Bank's possession; (d) endorse all checks and other forms of remittances
received by Bank; (e) pay, contest or settle any lien, charge, encumbrance,
security interest and adverse claim in or to any of the Collateral, or any
judgment based thereon, or otherwise take any action to terminate or discharge
the same; (f) grant extensions of time to pay, compromise claims and settle
Accounts and General Intangibles for less than face value and execute all
releases and other documents in connection therewith; (g) pay any sums required
on account of Borrower's taxes or to secure the release of any liens therefor,
or both; (h) settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor; (i) instruct any
third party having custody or control of any books or records belonging to, or
relating to, Borrower to give Bank the same rights of access and other rights
with respect thereto as Bank has under this Agreement; and (j) take any action
or pay any sum required of Borrower pursuant to this Agreement and any other
Loan Documents. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by Bank
with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Bank's rights under the foregoing power of attorney or any of Bank's other
rights under this Agreement be deemed to indicate that Bank is in control of the
business, management or properties of Borrower.
-15-
7.5 Application of Proceeds. All proceeds realized as the result of
any sale of the Collateral shall be applied by Bank, first, to the costs,
expenses, liabilities, obligations and attorneys' fees incurred by Bank in the
exercise of its rights under this Agreement, second, to the interest due upon
any of the Obligations, and third, to the principal of the Obligations, in such
order as Bank shall determine in its sole discretion. Any surplus shall be paid
to Borrower or other persons legally entitled thereto; Borrower shall remain
liable to Bank for any deficiency. If, Bank, in its good faith business
judgment, directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the
option, exercisable at any time, in its good faith business judgment, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Bank of the cash
therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set
forth in this Agreement, Bank shall have all the other rights and remedies
accorded a secured party under the Code and under all other applicable laws, and
under any other instrument or agreement now or in the future entered into
between Bank and Borrower, and all of such rights and remedies are cumulative
and none is exclusive. Exercise or partial exercise by Bank of one or more of
its rights or remedies shall not be deemed an election, nor bar Bank from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Bank to exercise any rights or remedies shall not operate as
a waiver thereof, but all rights and remedies shall continue in full force and
effect until all of the Obligations have been fully paid and performed.
8. Definitions. As used in this agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on an Account.
"Accounts" means all present and future "accounts" as defined in the
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all accounts receivable and
other sums owing to Borrower.
"Advances" has the meaning set forth in Section 1.1 above.
"Affiliate" means, with respect to any Person, any Person controlling,
controlled by or under common control with such Person.
"Bank Expenses" are all audit/inspection fees and expenses and
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) for preparing, negotiating, administering, defending and enforcing the
Loan Documents (including appeals or Insolvency Proceedings).
"Borrowing Base" means the lesser of (a) $5,000,000 or (b) 75% of
Borrower's Eligible Accounts of which, from November 1, 2005 through April 30,
2005, no more than $2,000,000 will be advanced against Eligible 'Early Buy' Pool
and Spa Accounts and from May 1 until June 15, 2006, no more than $1,500,000
(the "Pool and Spa Sublimit").
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"Business Day" means a day on which Bank is open for business.
"Change in Control" is a transaction in which any "person" or "group"
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Act")) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of greater than 35% of the
shares of all classes of stock then outstanding of Borrower ordinarily entitled
to vote in the election of directors.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 2 above.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (a) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (b) any obligations for undrawn letters of credit for the account of
that Person; and (c) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices, but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"continuing" and "during the continuance of" when used with reference to
a Default or Event of Default means that the Default or Event of Default has
occurred and has not been either waived in writing by Bank or cured within any
applicable cure period.
"Control Agreement" means, collectively, any control agreement entered
into among Borrower, Bank and the depositary bank, securities intermediary, or
commodity intermediary at which Borrower maintains a deposit account, securities
account, or a commodity account, pursuant to which Bank obtains control (within
the meaning of the applicable provision of the Code) over such deposit account,
securities account, or commodity account.
"Credit Extension" is each Advance or any other extension of credit by
Bank for the Borrower's benefit.
"Credit Limit" has the meaning set forth in the Schedule.
"Current Liabilities" means the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
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"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 7.2 above.
"Deposit Accounts" means all present and future "deposit accounts" as
defined in the Code in effect on the date hereof with such additions to such
term as may hereafter be made, and includes without limitation all general and
special bank accounts, demand accounts, checking accounts, savings accounts and
certificates of deposit.
"Eligible Accounts" means Accounts arising in the ordinary course of
Borrower's business from the sale of goods, the rendition of services, or the
non-exclusive licensing of Intellectual Property to Account Debtors that are
U.S. Account Debtors, that meet all Borrower's representations and warranties in
Article 4 which Bank, in its good faith business judgment, shall deem eligible
for borrowing. Without limiting the fact that the determination of which
Accounts are eligible for borrowing is a matter of Bank's good faith business
judgment, the following (the "Minimum Eligibility Requirements") are the minimum
requirements for an Account to be an Eligible Account: (a) the Account must not
be outstanding for more than 90 days from its invoice date (the "Eligibility
Period"), (b) the Account must not represent progress ▇▇▇▇▇▇▇▇, or be due under
a fulfillment or requirements contract with an. Account Debtor, (c) the Account
must not be subject to any contingencies (including Accounts arising from sales
on consignment, guaranteed sale or other terms pursuant to which payment by an
Account Debtor may be conditional), (d) the Account must not be owing from an
Account Debtor with whom Borrower has any dispute (whether or not relating to
the particular Account) (but, subject to Bank's satisfactory verification, only
the amount in dispute shall be excluded), (e) the Account must not be owing from
a Related Account Debtor of Borrower; (f) the Account must not be owing from an
Account Debtor which is subject to any insolvency or bankruptcy proceeding, or
whose financial condition is not acceptable to Bank, or which, fails or goes out
of a material portion of its business; (g) the Account must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to Bank's satisfaction, with the United States
Assignment of Claims Act); (h) the Account must not be owing from an Account
Debtor to whom Borrower is or may be liable for goods purchased from such
Account Debtor or otherwise (but, in such case, the Account will be deemed not
eligible only to the extent of any amounts owed by Borrower to such Account
Debtor); (g) the Account must not have selling terms greater than 90 days,
except for Eligible 'Early Buy' Pool and Spa Accounts (as defined below).
Accounts owing from one Account Debtor will not be deemed Eligible Accounts to
the extent they exceed 25% of the total Accounts outstanding. In addition, if
more than 50% of the Accounts owing from an Account Debtor are outstanding for a
period longer than their Eligibility Period (without regard to unapplied
credits) or are otherwise not eligible Accounts, then all Accounts owing from
that an Account Debtor will be deemed ineligible for borrowing. Bank may, from
time to time, in its good faith business judgment, revise the Minimum
Eligibility Requirements upon written notice to Borrower.
"Eligible 'Early Buy' Pool and Spa Accounts" means all of Borrower's
pool and spa accounts which are due and payable 91 to 180 days from the invoice
date, provided however that such accounts do not include those not paid within
the earlier of (a) thirty (30) days from the invoice due date or (b) 180 days
from the invoice date.
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"Equipment" means all present and future "equipment" as defined in the
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures,
goods, vehicles (including motor vehicles and trailers), and any interest in any
of the foregoing.
"Event of Default" means any of the events set forth in Section 7.1 of
this Agreement.
"GAAP" means generally accepted accounting principles consistently
applied.
"General Intangibles" means all present and future "general intangibles"
as defined in the Code in effect on the date hereof with such additions to such
term as may hereafter be made, and includes without limitation all Intellectual
Property, payment intangibles, royalties, contract rights, goodwill, franchise
agreements, purchase orders, customer lists, route lists, telephone numbers,
domain names, claims, income tax refunds, security and other deposits, options
to purchase or sell real or personal property, rights in all litigation
presently or hereafter pending (whether in contract, tort or otherwise),
insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of
any kind.
"good faith business judgment" means honesty in fact and good faith (as
defined in Section 1201 of the Code) in the exercise of Bank's business
judgment.
"including" means including (but not limited to).
"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services (such as reimbursement and other obligations for
surety bonds and letters of credit that are carried as liabilities on Borrower's
balance sheet) other than Contingent Obligations, (b) obligations evidenced by
notes, bonds, debentures or similar instruments, and (c) capital lease
obligations.
"Insolvency Proceeding" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Intellectual Property" means all present and future (a) copyrights,
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, (b) trade secret rights, including all rights to
unpatented inventions and know how, and confidential information; (c) mask work
or similar rights available for the protection of semiconductor chips; (d)
patents, patent applications and like protections including without limitation
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade styles,
and trade names, whether or not any of the foregoing are registered, and all
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Borrower connected with and symbolized by
any such trademarks; (f) computer software and computer software products; (g)
designs and design rights; (h) technology; (i) all claims for damages by way of
past, present and future infringement of any of the rights included above; and
(j) all licenses or other rights to use any property or rights of a type
described above.
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"Inventory" means all present and future "inventory" as defined in the
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all merchandise, raw
materials, parts, supplies, packing and shipping materials, work in process and
finished products, including without limitation such inventory as is temporarily
out of Borrower's custody or possession or in transit and including any returned
goods and any documents of title representing any of the above.
"Investment" is any beneficial ownership (including stock, partnership
interest or other securities) of any Person, or any loan, advance or capital
contribution to any Person.
"Investment Property" means all present and future investment property,
securities, stocks, bonds, debentures, debt securities, partnership interests,
limited liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets held
in any securities account or otherwise, and all options and warrants to purchase
any of the foregoing, wherever located, and all other securities of every kind,
whether certificated or uncertificated.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, the
Representations, the Intellectual Property Security Agreement, and all other
present and future documents, instruments and agreements between Bank and
Borrower, relating to this Agreement, and all amendments and modifications
thereto and replacements therefor.
"Material Adverse Change" means any of the following: (a) a material
adverse change in the business, operations, or financial or other condition of
the Borrower, (b) a material impairment of the prospect of repayment of any
portion of the Obligations, or (c) a material impairment of the priority of
Bank's security interests in the Collateral.
"Maturity Date" has the meaning set forth in Section 4 of the Schedule.
"Maximum Credit Limit" has the meaning set forth in the Schedule.
"Minimum Eligibility Requirements" is defined in the defined term
"Eligible Domestic Accounts."
"Obligations" means all present and future Credit Extensions, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Bank, whether evidenced by this Agreement or any other
Loan Document, or any note or other instrument or document, or otherwise,
whether arising from an extension of credit, opening of a letter of credit,
banker's acceptance, loan, guaranty, indemnification or otherwise, whether
direct or indirect (including, without limitation, those acquired by assignment
and any participation by Bank in Borrower's debts owing to others), absolute or
contingent, due or to become due, including, without limitation, all interest,
charges, expenses, fees, attorneys' fees, expert witness fees, audit/inspection
fees, collateral monitoring fees, closing fees, facility fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other Loan Documents.
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"Operating Documents" shall mean, for any Person, such Person's
formation documents, as currently filed with the Secretary of State of such
Person's state of formation, and, (a) if such Person is a corporation, its
bylaws in current form, (b) if such Person is a limited liability company, its
limited liability company agreement (or similar agreement), each of the
foregoing with all current modifications and amendments thereto.
"Other Property" means the following as defined in the Code in effect on
the date hereof with such additions to such term as may hereafter be made, and
all rights relating thereto: all present and future "commercial tort claims"
(including without limitation any commercial tort claims identified in the
Representations), "documents", "instruments", "promissory notes", "chattel
paper", "letters of credit", "letter-of-credit rights", "fixtures", "farm
products" and "money"; and all other goods and personal property of every kind,
tangible and intangible, whether or not governed by the Code.
"Payment" means all checks, wire transfers and other items of payment
received by Bank (including proceeds of Accounts and payment of the Obligations
in full) for credit to Borrower's outstanding Credit Extensions or, if the
Streamline Option is in effect, to its deposit accounts with Bank.
"Permitted Distributions" means:
(a) purchases of capital stock from former employees,
consultants and directors pursuant to repurchase agreements or other similar
agreements;
(b) distributions or dividends consisting solely of
Borrower's capital stock;
(c) purchases for value of any rights distributed in
connection with any stockholder rights plan; and
(d) any Subsidiary may pay dividends or make distributions
to Borrower or another Subsidiary.
"Permitted Indebtedness" is:
(a) Borrower's Indebtedness to Bank under this Agreement or
any other Loan Document;
(b) any Indebtedness in excess of $50,000 in principal
amount existing on the date of this Agreement and shown on the Representations;
(c) capitalized leases and purchase money Indebtedness
secured by Permitted Liens not exceeding $100,000;
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(d) refinanced Permitted Indebtedness, provided that the
amount of such Indebtedness is not increased except by an amount equal to a
reasonable premium or other reasonable amount paid in connection with such
refinancing and by an amount equal to any existing, but unutilized, commitment
thereunder;
(e) Indebtedness of Borrower to any Subsidiary to the extent
it is Subordinated Debt; Indebtedness of any Subsidiary to another Subsidiary;
and Indebtedness of any Subsidiary to Borrower to the extent permitted under
clause (g) of the definition of Permitted Investments; and
(f) Indebtedness under any performance, surety, statutory or
appeal bonds or similar obligations incurred in the ordinary course of business.
"Permitted Investments" are:
(a) Investments existing on the date of this Agreement;
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States or its agencies or any State
maturing within one (1) year from its acquisition, (ii) commercial paper
maturing no more than one (1) year after its creation and having the highest
rating from either Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investors Service,
Inc., (iii) Bank's certificates of deposit issued maturing no more than two (2)
years after issue; (iv) repurchase agreements having maturities of not more than
90 days; (v) money market accounts maintained with mutual funds having assets in
excess of $1,000,000; (vi) tax exempt securities rated A or better by Moody's or
A+ or better by Standard & Poors; (vii) mutual funds having at least 95% of
their assets invested in the foregoing Investments, and (viii) other Investments
permitted by Borrower's investment policy that has been approved by its board of
directors (or a committee thereof) and Bank;
(c) Investments consisting of deposit and investment
accounts in the name of Borrower;
(d) Investments consisting of extensions of credit to
Borrower's or its Subsidiaries' customers in the nature of accounts receivable,
prepaid royalties or notes receivable arising from the sale or lease of goods,
provision of services or licensing activities of Borrower;
(e) Investments received in satisfaction or partial
satisfaction of obligations owed by financially troubled obligors;
(f) Investments acquired in exchange for any other
Investments in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization;
(g) Investments of Subsidiaries in or to Borrower;
Investments of Subsidiaries in or to other Subsidiaries; and
(h) Investments received in a transaction permitted under
Section 5.5(c).
-22-
"Permitted Liens" means the following:
(a) (i) Liens existing on the Effective Date and shown on
the Representations and (ii) Liens arising under this Agreement or other Loan
Documents;
(b) Liens for taxes, fees, assessments or other government
charges or levies, either not delinquent or being contested in good faith and
for which Borrower maintains adequate reserves on its Books, if they have no
priority over any of Bank's security interests;
(c) Liens (including with respect to capital leases) (i) on
property (including accessions, additions, parts, replacements, fixtures,
improvements and attachments thereto, and the proceeds thereof) acquired or held
by Borrower or its Subsidiaries incurred for financing such property (including
accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof), or (ii) existing on property
(and accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof) when acquired, if the Lien is
confined to such property (including accessions, additions, parts, replacements,
fixtures, improvements and attachments thereto, and the proceeds thereof) and
the Indebtedness is Permitted Indebtedness;
(d) Liens incurred in the extension, renewal or refinancing
of the indebtedness secured by Liens described in (a) through (c), but any
extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness it
secures may not increase;
(e) licenses or sublicenses granted in the ordinary course
of Borrower's business and any interest or title of a licensor or under any
license or sublicense, if the licenses and sublicenses permit granting Bank a
security interest;
(f) leases or subleases granted in the ordinary course of
Borrower's or any of its Subsidiaries' business, including in connection with
Borrower's leased premises or leased property;
(g) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are not overdue for a period of more than 30 days or which are being contested
in good faith and by appropriate proceeding if adequate reserves with respect
thereto are maintained on the books of the applicable Person;
(h) pledges or deposits in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
social security legislation;
(i) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), contracts for the purchase of
property, leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature, in each case, incurred in the
ordinary course of business and not representing an obligation for borrowed
money;
(j) easements, rights-of-way, restrictions and other similar
encumbrances affecting real property which do not materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the applicable Person;
-23-
(k) statutory, common law or contractual Liens of depository
institutions or institutions holding securities accounts (including rights of
set-off) provided they are subordinate to Bank's Liens pursuant to the terms of
a control agreement;
(l) Liens in favor of customs or revenue authorities arising
as a matter of law to secure payment of customs duties in connection with the
importation of goods; and
(m) Liens on insurance proceeds in favor of insurance
companies granted solely to secure financed insurance premiums.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Prime Rate" means the rate announced from time to time by Bank as its
"prime rate;" it is a base rate upon which other rates charged by Bank are
based, and it is not necessarily the best rate available at Bank.
"Quick Assets" is, on any day, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable, and investments with
maturities less than 12 months determined according to GAAP.
"Related Account Debtor" means, with respect to any Person, any
Affiliate, relative, partner, shareholder, director, officer, or employee of
such Person.
"Representations" means the written Collateral Information Certificate
provided by Borrower to Bank.
"Reserves" means, as of any date of determination, such amounts as Bank
may from time to time establish and revise in its good faith business judgment,
reducing the amount of Credit Extensions and other financial accommodations
which would otherwise be available to Borrower under the lending formula(s)
provided in the Schedule: (a) for accrued interest; (b) to reflect events,
conditions, contingencies or risks which, as determined by Bank in its good
faith business judgment, do or may adversely affect (i) the Collateral or any
other property which is security for the Obligations or its value (including
without limitation any increase in delinquencies of Accounts), (ii) the assets,
business or prospects of Borrower, or (iii) the security interests and other
rights of Bank in the Collateral (including the enforceability, perfection and
priority thereof); or (c) to reflect Bank's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
to Bank is or may have been incomplete, inaccurate or misleading in any material
respect; or (d) in respect of any state of facts which Bank determines in good
faith constitutes a Default or an Event of Default.
"Schedule" means that Schedule to Loan and Security Agreement attached
to this Agreement.
"Streamline Option" has the meaning set forth in Section 6 of the
Schedule.
-24-
"Subsidiary" is, for any Person, any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.
"Tangible Net Worth" shall mean, for Borrower, Subordinated Debt plus
the excess of total assets of Borrower minus Total Liabilities of Borrower,
determined in accordance with GAAP and on an unconsolidated basis, and there
shall be excluded from assets, without duplication: (a) notes, accounts
receivable and other obligations owing to Borrower from its officers or other
Affiliates, and (b) all assets which would be classified as intangible assets
under GAAP, including without limitation goodwill, licenses, patents,
trademarks, trade names, copyrights, capitalized software and organizational
costs, licenses and franchises.
"Total Liabilities" are, on any day, obligations that should, under
GAAP, be classified as liabilities on Borrower's consolidated balance sheet,
including all Indebtedness and any current portion of Subordinated Debt allowed
to be paid, but excluding all other Subordinated Debt.
"U.S. Account Debtor" means any Account Debtor that is incorporated or
organized under the laws of the United States of America, a state thereof, or
the District of Columbia.
Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP, consistently applied. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meanings provided by the Code, to the
extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation; Float Charge. In computing interest on the
Obligations, all Payments received after 12:00 Noon Pacific time on any day
shall be deemed received on the next Business Day. In addition, whenever Credit
Extensions are outstanding, Bank shall be entitled to charge Borrower a "float"
charge in an amount equal to two (2) Business Days' interest, at the interest
rate applicable to the Credit Extensions, on all Payments received by Bank. The
float charge for each month shall be payable on the last day of the month. Bank
shall not, however, be required to credit Borrower's account for the amount of
any item of payment which is unsatisfactory to Bank in its good faith business
judgment, and Bank may charge Borrower's loan account for the amount of any item
of payment which is returned to Bank unpaid.
9.2 Application of Payments. All payments with respect to the
Obligations may be applied, and in Bank's good faith business judgment reversed
and re-applied, to the Obligations, in such order and manner as Bank shall
determine in its good faith business judgment.
-25-
9.3 Charges to Accounts. Bank may, in its discretion, require that
Borrower pay monetary Obligations in cash to Bank or charge any monetary
Obligations to Borrower's deposit accounts maintained with Bank, or, if no
amounts are available in such deposit accounts, charge them to Borrower's loan
account with Bank, in which event they will bear interest at the same rate
applicable to the Credit Extensions.
9.4 Monthly Accountings. Bank shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower (except for reverses and reapplications of payments made and
corrections of errors discovered by Bank), unless Borrower notifies Bank in
writing to the contrary within sixty (60) days after such account is rendered,
describing the nature of any alleged errors or omissions.
9.5 Notices. All notices to be given under this Agreement shall be
in writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Bank or Borrower at the addresses shown in the heading
to this Agreement, or at any other address designated in writing by one party to
the other party. Notices to Bank shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by
any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in full
force and effect.
9.7 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Bank and supersede all
prior and contemporaneous negotiations and oral representations and agreements,
all of which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
9.8 Waivers; Indemnity. The failure of Bank at any time or times to
require Borrower to strictly comply with any of the provisions of this Agreement
or any other Loan Document shall not waive or diminish any right of Bank later
to demand and receive strict compliance therewith. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent, and
whether or not similar. None of the provisions of this Agreement or any other
Loan Document shall be deemed to have been waived by any act or knowledge of
Bank or its agents or employees, but only by a specific written waiver signed by
an authorized officer of Bank and delivered to Borrower. Borrower waives the
benefit of all statutes of limitations relating to any of the Obligations or
this Agreement or any other Loan Document, and Borrower waives demand, protest,
notice of protest and notice of default or dishonor, notice of payment and
nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by Bank on which Borrower is or may in any way be liable, and
notice of any action taken by Bank, unless expressly required by this Agreement.
-26-
Borrower hereby agrees to indemnify Bank and its affiliates, subsidiaries,
parent, directors, officers, employees, agents, and attorneys, and to hold them
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
reasonable attorneys' fees), of every kind, which they may sustain or incur
based upon or arising out of any of the Obligations, or any relationship or
agreement between Bank and Borrower, or any other matter, relating to Borrower
or the Obligations; provided that this indemnity shall not extend to damages
proximately caused by the indemnitee's own gross negligence or willful
misconduct. Notwithstanding any provision in this Agreement to the contrary, the
indemnity agreement set forth in this Section shall survive any termination of
this Agreement and shall for all purposes continue in full force and effect.
9.9 No Liability for Ordinary Negligence. Neither Bank, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Bank shall be liable for any claims, demands,
losses or damages, of any kind whatsoever, made, claimed, incurred or suffered
by Borrower or any other party through the ordinary negligence of Bank, or any
of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Bank, but nothing herein shall relieve Bank from
liability for its own gross negligence or willful misconduct.
9.10 Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Bank.
9.11 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 Attorneys' Fees and Costs. Borrower shall reimburse Bank for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, inspection, and other reasonable costs incurred by Bank,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Bank incurs in order to do the following: prepare and
negotiate this Agreement and all present and future documents relating to this
Agreement; obtain legal advice in connection with this Agreement or Borrower;
enforce, or seek to enforce, any of its rights; prosecute actions against, or
defend actions by, Account Debtors; commence, intervene in, or defend any action
or proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party
claim, or other claim; examine, audit, copy, and inspect any of the Collateral
or any of Borrower's books and records; protect, obtain possession of, lease,
dispose of, or otherwise enforce Bank's security interest in, the Collateral;
and otherwise represent Bank in any litigation relating to Borrower. In
satisfying Borrower's obligation hereunder to reimburse Bank for attorneys fees,
Borrower may, for convenience, issue checks directly to Bank's attorneys,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP, but Borrower acknowledges and agrees that ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ LLP is representing only Bank and not Borrower in connection with this
Agreement. If either Bank or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its reasonable costs and attorneys' fees, including
(but not limited to) reasonable attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. All attorneys' fees and costs to which Bank may be entitled pursuant
to this Section shall immediately become part of the Obligations, shall be due
on demand and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
-27-
9.13 Benefit of Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Bank; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Bank, and any prohibited
assignment shall be void. No consent by Bank to any assignment shall release
Borrower from its liability for the Obligations.
9.14 Limitation of Actions. Any claim or cause of action by Borrower
against Bank, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Agreement, or any other
Loan Document, or any other transaction contemplated hereby or thereby or
relating hereto or thereto, or any other matter, cause or thing whatsoever,
occurred, done, omitted or suffered to be done by Bank, its directors, officers,
employees, agents, accountants or attorneys, shall be barred unless asserted by
Borrower by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within one year after the first act,
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, and the service of a summons and complaint on an officer of
Bank, or on any other person authorized to accept service on behalf of Bank,
within thirty (30) days thereafter. Borrower agrees that such one-year period is
a reasonable and sufficient time for Borrower to investigate and act upon any
such claim or cause of action. The one-year period provided herein shall not be
waived, tolled, or extended except by the written consent of Bank in its sole
discretion. This provision shall survive any termination of this Agreement or
any other Loan Document.
9.15 Paragraph Headings; Construction. Paragraph headings are only
used in this Agreement for convenience. Borrower and Bank acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed strictly
against Bank or Borrower under any rule of construction or otherwise.
9.16 Governing Law; Jurisdiction; Venue. This Agreement and all acts
and transactions hereunder and all rights and obligations of Bank and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Bank to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Bank's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Santa ▇▇▇▇▇ County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
-28-
9.17 Mutual Waiver of Jury Trial. BORROWER AND BANK EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN BANK AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF BANK OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH BANK OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
9.18 Confidentiality. In handling any confidential information of
Borrower, Bank will exercise the same degree of care that it exercises for its
own proprietary information, but disclosure of information may be made: (a) to
Bank's subsidiaries or affiliates in connection with their present or
prospective business relations with Borrower; (b) to prospective transferees or
purchasers of any interest in the Credit Extensions; (c) as required by law,
regulation, subpoena, or other order so long as Borrower is given notice thereof
if practicable (and Bank is permitted to provide such notice) and an opportunity
to seek a protective order, (d) as required in connection with Bank's
examination or inspection/audit; and (e) as Bank considers appropriate in
exercising remedies under this Agreement. Confidential information does not
include information that either: (x) is in the public domain or in Bank's
possession when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank; or (y) is disclosed to Bank by a third party.
[Signature page follows.]
-29-
EXECUTION COPY
IN WITNESS WHEREOF, the parties have duly authorized and caused this
Agreement to be executed as of the date first written above.
BORROWER:
FIBERSTARS, INC., a California corporation
By:
--------------------------------------------------
Title:
-----------------------------------------------
BANK:
SILICON VALLEY BANK
By:
--------------------------------------------------
Title
------------------------------------------------
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: FIBERSTARS, INC.
ADDRESS: ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
DATE: AUGUST 15, 2005
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and Borrower of even date.
================================================================================
1. CREDIT LIMIT
(Section 1.1): An amount (the "Credit Limit") not to
exceed the lesser of: (a) $5,000,000 at
any one time outstanding (the "Maximum
Credit Limit") or (b) amounts available
under the Borrowing Base.
Bank may, from time to time, modify the
Borrowing Base in its good faith
business judgment, upon notice to the
Borrower, based on changes in collection
experience with respect to Eligible
Accounts or other issues or factors
relating to the Eligible Accounts or
other Collateral.
Notwithstanding anything to the contrary
herein, the aggregate amount of all
outstanding Credit Extensions and
amounts outstanding under the sublimits
set forth below, shall not exceed the
Maximum Credit Limit.
CONDITIONS PRECEDENT
(Section 1.1)
Bank's obligation to make the initial
Credit Extension is subject to the
condition precedent that the following
have been satisfied, all in form and
substance satisfactory to Bank:
(a) Borrower shall have
executed and delivered the Loan
Documents;
(b) Borrower shall have
delivered an executed one or more
Control Agreements by and among
Borrower, Bank, and the depositary bank,
securities intermediary, or commodity
intermediary at which Borrower maintains
a Collateral Account for Bank to perfect
its security interest in any such
Collateral Account;
(c) Borrower shall have
delivered the Operating Documents and a
good standing certificate of Borrower
from the State of California;
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------
(d) Borrower shall have
delivered the Corporate Borrowing
Resolutions;
(e) Bank shall have conducted
an initial field inspection of
Borrower's Accounts prior to the initial
Advance;
(f) Borrower shall have paid
all costs and fees, including the Loan
Fee and Bank Expenses, then due; and
(g) Borrower shall have
delivered to Bank, in addition to the
documents required herein, all
documents, certificates, and other
assurances that Bank or its counsel may
reasonably request.
Bank's obligation to make each Credit
Extension, including the initial Credit
Extension, is subject to the condition
precedent that the following shall have
been satisfied, all in form and
substance satisfactory to Bank:
(x) timely receipt of a notice
of borrowing pursuant to Section 1.6;
(y) unless otherwise waived by
Bank, the Control Agreements shall be in
full force and effect; and
(z) the representations and
warranties in Section 3 must be true on
the date of the notice of borrowing and
on the date any Credit Extension is
made, and no Default or Event of Default
may have occurred and be continuing or
result from the Credit Extension. Each
Credit Extension is Borrower's
representation and warranty on that date
that the representations and warranties
of Section 3 remain true.
SUBLIMITS
(Sections 1.1, 1.2 and 1.6):
CASH MANAGEMENT
---------------
SERVICES AND RESERVES: Borrower may use amounts not to exceed
--------------------- $500,000 minus the sum of (a) the FX
Reserve and (b) amounts outstanding
under the Letters of Credit, for Bank's
Cash Management Services (as defined
below), including, merchant services,
business credit card, ACH and other
services identified in the cash
management services agreement related to
such service (the "Cash Management
Services"). Bank may, in its sole
discretion, reserve against Credit
Extensions which would otherwise be
available hereunder such sums as Bank
shall determine in its good faith
business judgment in connection with the
Cash Management Services, and Bank may
charge to Borrower's loan account or
deposit accounts with Bank, any amounts
that may become due or owing to Bank in
connection with the Cash Management
Services. Borrower agrees to execute and
deliver to Bank all standard form
applications and agreements of Bank in
connection with the Cash Management
Services, and, without limiting any of
the terms of such applications and
agreements, Borrower will pay all
standard fees and charges of Bank in
connection with the Cash Management
Services. The Cash Management Services
shall terminate on the Maturity Date.
-2-
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------
FOREIGN EXCHANGE
----------------
Contract Sublimit: Borrower may enter into foreign exchange
------------------ forward contracts with Bank, on its
standard forms, under which Borrower
commits to purchase from or sell to Bank
a set amount of foreign currency more
than one business day after the contract
date (the "FX Forward Contracts"). Bank
will subtract ten percent of each
outstanding FX Forward Contract from the
foreign exchange sublimit which is a
maximum of $500,000 minus the sum of (a)
all amounts utilized for Cash Management
Services and (b) the face amount of all
issued outstanding Letters of Credit
(the "FX Reserve"). The aggregate amount
of the FX Forward Contracts at any one
time may not exceed ten (10) times the
amount of the FX Reserve (which shall be
in addition to other reserves). In the
event at any time there are insufficient
amounts available to Borrower for such
FX Reserve, Borrower shall deposit and
maintain with Bank cash collateral in an
amount at all times equal to such
deficiency, which shall be held as
Collateral for all purposes of this
Agreement. Bank may, in its discretion,
terminate the FX Forward Contracts at
any time that an Event of Default occurs
and is continuing. Borrower shall
execute all standard form applications
and agreements of Bank in connection
with the FX Forward Contracts, and
without limiting any of the terms of
such applications and agreements,
Borrower shall pay all standard fees and
charges of Bank in connection with the
FX Forward Contracts.
Letters of Credit Pursuant to the terms set forth in
----------------- Section 1.6, the aggregate face Sublimit
(Section 1.6) amount of all Letters of Credit from
time to time issued and outstanding
shall not exceed the maximum of $500,000
minus the sum of (a) the FX Reserve and
(b) Cash Management Services.
================================================================================
2. INTEREST.
INTEREST RATE
(Section 1.2): A rate equal to the Prime Rate in effect
from time to time plus one and
three-quarter percent (1.75%) per annum,
except that for Advances made under the
Pool and Spa Sublimit such rate shall
equal the Prime Rate plus two and
one-quarter percent (2.25%) per annum.
Interest shall be calculated on the
basis of a 360-day year for the actual
number of days elapsed. The interest
rate applicable to the Obligations shall
change on each date there is a change in
the Prime Rate.
================================================================================
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------
3. FEES (Section 1.4):
Loan Fee: $25,000 due and payable on the Effective
Date. Bank acknowledges receipt of
payment of $20,000 which has been
credited to Borrower for amounts payable
hereunder.
Collateral Handling Fee: $1,000 due and payable on the last day
of each month, so long as there are
Credit Extensions outstanding under the
Credit Limit.
Unused Line Fee: 0.25% of the average unused daily
balance of the Maximum Credit Limit due
and payable on the last day of each
month.
================================================================================
4. MATURITY DATE
(Section 6.1): August 14, 2006 (the "Maturity Date")
================================================================================
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with each of the
following covenants:
MINIMUM TANGIBLE
NET WORTH
(Monthly): As of the last day of each month,
Borrower shall maintain a Tangible Net
Worth of not less than (a) $10,000,000
from the Effective Date through December
31, 2005 and (b) $8,500,000 thereafter,
plus fifty percent (50%) of all
consideration received after the
Effective Date for equity securities of
Borrower and Subordinated Debt and
twenty-five percent (25%) of quarterly
net income. Increases in the Minimum
Tangible Net Worth covenant based on
consideration received for (a) equity
securities of Borrower and Subordinated
Debt shall be effective as of the end of
each month in which such consideration
is received and (b) quarterly income
shall be effective as of the end of each
fiscal quarter, and shall continue
effective thereafter.
================================================================================
6. REPORTING.
(Section 5.3):
Borrower shall provide Bank with the
following:
1. At each request for a Credit
Extension, but not less than weekly,
transaction reports and schedules of
collections, on Bank's standard form.
2. Monthly accounts receivable
agings, aged by invoice date, and
accounts payable agings, aged by invoice
date, inventory reports and outstanding
or held check registers, if any, within
thirty (30) days after the end of each
month, together with a Borrowing Base
Certificate in the form of Exhibit A
attached hereto.
3. Monthly reconciliations of
accounts receivable agings (aged by
invoice date), transaction reports, and
general ledger, within thirty (30) days
after the end of each month.
4. Monthly unaudited financial
statements, as soon as available, and in
any event within thirty (30) days after
the end of each month.
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
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5. A monthly Compliance
Certificate substantially in the form of
Exhibit B attached hereto, within thirty
(30) days after the end of each month,
in such form as Bank shall reasonably
specify, signed by the Chief Financial
Officer of Borrower, certifying that, as
of the end of such month, Borrower was
in full compliance with all of the terms
and conditions of this Agreement, and
setting forth calculations showing
compliance with the financial covenants
set forth in this Agreement and such
other information as Bank shall
reasonably request, including, without
limitation, a statement that at the end
of such month there were no held checks.
6. Annual operating budgets
(including income statements, balance
sheets and cash flow statements, by
month) for the upcoming fiscal year of
Borrower within thirty (30) days prior
to the end of each fiscal year of
Borrower, but for fiscal year 2006, no
later than November 15, 2005.
7. Annual financial statements,
as soon as available, and in any event
within 120 days following the end of
Borrower's fiscal year, audited by, and
with an unqualified opinion of,
independent certified public accountants
acceptable to Bank.
STREAMLINE OPTION Notwithstanding the foregoing, if, at
any time Credit Extensions are zero or
have been reduced to zero, then Borrower
shall not be required to provide the
items set forth in paragraphs 1 and 3 of
this Section 6 (the "Streamline
Option"). As long as the Streamline
Option is in effect, Borrower must
provide Bank thirty (30) days notice to
request an Advance and after such notice
is provided the Streamline Option will
be terminated. An audit will then be
required prior to the Advance.
-5-
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
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================================================================================
7. ADDITIONAL PROVISIONS
(1) Banking Relationship. Borrower
shall at all times maintain with
Bank or an affiliate of Bank, its
primary deposit and investment
accounts.
(2) Subordination of Inside Debt. All
present and future indebtedness of
Borrower to its officers, directors
and shareholders ("Inside Debt")
shall, at all times, be
subordinated to the Obligations
pursuant to a subordination
agreement on Bank's standard form.
Borrower represents and warrants
that there is no Inside Debt
presently outstanding, except as
provided in the Representations.
Prior to incurring any Inside Debt
in the future, Borrower shall cause
the person to whom such Inside Debt
will be owed to execute and deliver
to Bank a subordination agreement
on Bank's standard form.
BORROWER: BANK:
FIBERSTARS, INC. SILICON VALLEY BANK
By By
------------------------- --------------------------
Title Title
------------------------ ------------------------
-6-
EXHIBIT A
FORM OF BORROWING BASE CERTIFICATE
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK Date:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FROM: FIBERSTARS, INC.
The undersigned Chief Financial Officer of FiberStars, Inc.
("Borrower") certifies that under the terms and conditions of the Loan and
Security Agreement dated August 15, 2005, between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date. In addition, the undersigned certifies that (x)
Borrower and each of its Subsidiaries has timely filed all required tax returns
and paid, or made adequate provision to pay, all material taxes, except those
being contested in good faith with adequate reserves under GAAP, (y) there are
no legal actions pending or threatened against Borrower or any of its
Subsidiaries which Borrower has not previously notified in writing to Bank, and
(z) as of the end of this compliance period, there were no held checks. Attached
are the required financial reports and calculation of financial covenants
supporting the certification. The undersigned acknowledges that no borrowings
may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES, NO, OR N/A UNDER
"COMPLIES" COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------------------------------------------ ------------------------------------ ---------------------
Transaction reports and schedules of collections Weekly and with requests for Credit Yes No N/A
Extensions*
Accounts receivable agings, aged by invoice date, Monthly within 30 days of month end Yes No N/A
accounts payable agings, aged by invoice date, and
outstanding or held check registers, if any + BB
Reconciliations of accounts receivable agings, aged by Monthly within 30 days of month end* Yes No N/A
invoice date, transaction reports, and general ledger
Perpetual inventory reports for Inventory valued on a Monthly within 30 days of month end Yes No N/A
first-in, first-out basis at the lower of cost or
market (in accordance with GAAP)
Monthly unaudited financial statements + CC Monthly within 30 days of month end Yes No N/A
Annual operating budgets (including income statements, 30 days prior to FYE Yes No N/A
balance sheets, and cash flow statements, each of the
foregoing, by month) for the upcoming fiscal year
Annual financial statements certified by, and with an Annually, within 120 days after FYE Yes No N/A
unqualified opinion of, independent CPA
* not applicable during Streamline Option
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
---------------------------------- ---------------------------------- --------- ---------------------
Tangible Net Worth (month end)
From the Effective Date through $________ Yes No
December 31, 2005: $10,000,000
plus 50% of all consideration
received after the Effective Date
for equity securities and
Subordinated Debt and 25% of
quarterly net income
From January 1, 2006 and $________ Yes No
thereafter: $8,500,000 plus 50% of
all consideration received after
the Effective Date for equity
securities and Subordinated Debt
and 25% of quarterly net income
Outstanding Obligations under Loan $0 $______ Yes No N/A
Agreement*
Comments Regarding Exceptions: See Attached.
Sincerely, BANK USE ONLY
FIBERSTARS, INC. Received by:
----------------------------
By: AUTHORIZED SIGNER
-------------------------------
Date:
Name: -----------------------------------
-----------------------------
Verified:
Title: Chief Financial Officer -------------------------------
AUTHORIZED SIGNER
Date:
-----------------------------------
Compliance Status: Yes No