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EXHIBIT 10.15
TBCC
LOAN AND SECURITY AGREEMENT
BORROWER: TUT SYSTEMS, INC.,
A Delaware corporation
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
DATE: DECEMBER 18, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into as of the above date, between
the above borrower (the "Borrower"), having its chief executive office and
principal place of business at the address shown above, and TRANSAMERICA
BUSINESS CREDIT CORPORATION, a Delaware corporation, ("TBCC") having its
principal office at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
and having an office at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇. The Schedule to this Agreement (the "Schedule") being signed concurrently
is an integral part of this Agreement. (Definitions of certain terms used in
this Agreement are set forth in Section 9 below.) The parties agree as follows:
1. LOANS.
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1.1. Loans. TBCC, subject to the terms and conditions of this Agreement,
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agrees to make loans (the "Loans") to Borrower, from time to time during the
period from the date of this Agreement to the Maturity Date set forth in the
Schedule, at Borrower's request, in an aggregate principal amount at any one
time outstanding not to exceed the Credit Limit shown on the Schedule. If at any
time the total outstanding Loans and other monetary Obligations exceed said
limit, Borrower shall repay the excess immediately without demand. Borrower
shall use the proceeds of all Loans solely for lawful general business purposes.
1.2. Due Date. The Loans, all accrued interest and all other monetary
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Obligations shall be payable in full on the Maturity Date. Borrower may borrow,
repay and reborrow Loans (other than any Term Loans), in whole or in part, in
accordance with the terms of this Agreement.
1.3. Loan Account. TBCC shall maintain an account on its books in the name
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of Borrower (the "Loan Account") All Loans and advances made by TBCC to Borrower
or for Borrower's account and all other monetary Obligations will be charged to
the Loan Account. All amounts received by TBCC from Borrower or for Borrower's
account will be credited to the Loan Account. TBCC will send Borrower a monthly
statement reflecting the activity in the Loan Account, and each such monthly
statement shall be an account stated between Borrower and TBCC and shall be
final conclusive and binding absent manifest error.
1.4. Collection of Receivables. Borrower shall remit to TBCC all Collections
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including all checks, drafts and other documents and instruments evidencing
remittances in payment (collectively referred to as "Items of Payment") within
one Business Day after receipt, in the same form as received, with any necessary
endorsements. For purposes of calculating interest due to TBCC, credit will be
given for Collections and all other proceeds of Collateral and other payments to
TBCC on the Business Day receipt cleared funds. For all purposes of this
Agreement any cleared funds received by TBCC later than 10:00 a.m. (California
time) on any Business Day shall be deemed to have been received on the following
Business Day and any applicable interest or fee shall continue to accrue.
Borrower's Loan Account will be credited only with the net amounts actually
received in payment of Receivables, and such payments shall be credited to the
Obligations in such order as TBCC shall determine in its discretion. Pending
delivery to TBCC, Borrower will not commingle any Items of Payment with any of
its other funds or property, but will segregate them from the other assets of
Borrower and will hold them in trust and for the account and as the property of
TBCC. Borrower hereby agrees to endorse any Items of Payment upon the request of
TBCC.
* of
1.5. Reserves. TBCC may, from time to time, in its Good Faith business
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judgment (i) establish and modify reserves against Eligible Receivables and
Eligible Inventory, (ii) modify advance rates with respect to Eligible
Receivables and Eligible Inventory, (iii) modify the standards of eligibility
set forth in the definitions of Eligible Receivables and Eligible Inventory, and
(iv) establish reserves against available Loans.
1.6. Term.
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(a) The term of this Agreement shall be from the date of this Agreement to
the Maturity Date set forth in the
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TBCC LOAN AND SECURITY AGREEMENT
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Schedule, unless sooner terminated in accordance with the terms of this
Agreement, provided that the Maturity Date shall automatically be extended, and
this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than sixty days prior to the next Maturity Date, that such party
elects to terminate this Agreement effective on the next Maturity Date. On the
Maturity Date or on any earlier termination of this Agreement Borrower shall pay
in full all Obligations, and notwithstanding any termination of this Agreement
all of TBCC's security interests and all of TBCC's other rights and remedies
shall continue in full force and effect until payment and performance in full of
all Obligations.
(b) This Agreement may be terminated prior to the Maturity Date as follows:
(i) by Borrower, effective three Business Days after written notice of
termination is given to TBCC; or (ii) by TBCC at any time after the occurrence
of an Event of Default, without notice, effective immediately. If this Agreement
is terminated by Borrower or by TBCC under this Section 1.6(b). Borrower shall
pay to TBCC a termination fee (the "Termination Fee") in the amount shown on the
Schedule. The Termination Fee shall be due and payable on the effective date of
termination Notwithstanding the foregoing, Borrower shall have no right to
terminate this Agreement at any time that any principal of, or interest on any
of the Loans or any other monetary Obligations are outstanding, except upon
prepayment of all Obligations and the satisfaction of all other conditions set
forth in the Loan Documents.
1.7. Payment Procedures. Borrower hereby authorizes TBCC to charge the Loan
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Account with the amount of all interest, fees, expenses and other payments to be
made hereunder and under the other Loan Documents. TBCC may, but shall not be
obligated to, discharge Borrower's payment obligations hereunder by so charging
the Loan Account. Whenever any payment to be made hereunder is due on a day that
is not a Business Day, the payment may be made on the next succeeding Business
Day and such extension of time shall be included in the computation of the
amount of interest due.
1.8. Conditions to Initial Loan. The obligation of TBCC to make the initial
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Loan is subject to the satisfaction of the following conditions prior to or
concurrent with such initial Loan, and Borrower shall cause all such conditions
to be satisfied by the Closing Deadline set forth in the Schedule:
(a) Except for the filling of termination statements under the Code by the
existing lender to Borrower whose loans are being repaid with the Loan proceeds,
no consent or authorization of, filing with or other act by or in respect of any
Governmental Authority or any other Person is required in connection, with the
execution, delivery, performance, validity or enforceability of this Agreement,
or the other Loan Documents or the consummation of the transactions contemplated
hereby or thereby or the continuing operations of the Borrower following the
consummation of such transactions.
(b) TBCC and its counsel shall have performed (i) a review satisfactory to
TBCC of all of the Material Contracts and other assets of the Borrower, the
financial condition of the Borrower, including all of its tax, litigation,
environmental and other potential contingent liabilities, and the corporate and
capital structure of the Borrower and (ii) a pre-closing audit and collateral
review, in each case with results satisfactory to TBCC.
(c) TBCC shall have received the following, each dated the date of the
initial Loan or as of an earlier date acceptable to TBCC, in form and substance
satisfactory to TBCC and its counsel: (i) a Depository Account Agreement (as
TBCC shall designate), duly executed by the Borrower and its bank on TBCC's
standard form; (ii) acknowledgment copies of Uniform Commercial Code financing
statements (naming TBCC as secured party and the Borrower as debtor), duly filed
in all jurisdictions that TBCC deems necessary or desirable to perfect and
protect the Liens created hereunder, and evidence that all other filings,
registrations and recordings have been made in the appropriate governmental
offices, and all other action has been taken, which shall be necessary to
create, in favor of TBCC, a perfected first priority Lien on the Collateral;
(iii) the opinion of counsel for the Borrower covering such matters incident to
the transactions contemplated by this Agreement as TBCC may specify in its
discretion; (iv) certified copies of all policies of insurance required by this
Agreement and the other Loan Documents, together with loss payee endorsements
for all such policies naming TBCC as lender loss payee and an additional
insured; (v) copies of the Borrower's articles or certificate of incorporation,
certified as true, correct and complete by the secretary of state of Borrower's
state of incorporation within 45 days of the date hereof; (vi) copies of the
bylaws of the Borrower and a copy of the resolutions of the Board of Directors
of the Borrower authorizing the execution, delivery and performance of this
Agreement, the other Loan Documents, and the transactions contemplated hereby
and thereby, attached to which is a certificate of the Secretary or an Assistant
Secretary of the Borrower certifying (A) that such copies of the bylaws and
resolutions are true, complete and accurate copies thereof, have not been
amended or modified since the date of such certificate and are in full force and
effect and (B) the incumbency, names and true signatures of the officers of the
Borrower; (vii) a good standing certificate from the Secretary of State of
Borrower's state of incorporation and each state in which the Borrower is
qualified as a foreign corporation, each dated within ten days of the date
hereof; (viii) the additional documents and agreements, if any, listed in the
Schedule, and (ix) such other agreements and instruments as TBCC deems necessary
in its sole and absolute discretion in connection with the transactions
contemplated hereby.
1.9. Conditions to Lending. The obligation of TBCC to make any Loan is
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subject to the satisfaction of the following conditions precedent:
(a) There shall be no pending or, to the knowledge of Borrower after due
inquiry, threatened litigation, proceeding, inquiry or other action relating to
this Agreement, or any
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TBCC LOAN AND SECURITY AGREEMENT
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other Loan Document, or which could be expected to have a Material Adverse
Effect in the judgment of TBCC;
(b) Borrower shall be in compliance with all Requirements of Law and Material
Contracts, other than such noncompliance that could not have a Material Adverse
Effect;
(c) The Liens in favor of TBCC shall have been duly perfected and shall
constitute first priority Liens, except for Permitted Liens;
(d) All representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct on and as of the date of such
Loan as if then made, other than representations and warranties that expressly
relate solely to an earlier date, in which case they shall have been true and
correct as of such earlier date;
(e) No Default or Event of Default shall have occurred and be continuing or
would result from the making of the requested Loan as of the date of such
request; and
(f) No Material Adverse Effect shall have occurred.
2. INTEREST AND FEES.
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2.1. Interest. Borrower shall pay TBCC interest on all outstanding Loans and
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other monetary Obligations, at the interest rate set forth in the Schedule.
Interest shall be payable monthly in arrears on the first Business Day of each
month, and on the Maturity Date. Following the occurrence and during the
continuance of any Event of Default, the interest rate applicable to all
Obligations shall be increased by two percent annum.
2.2. Fees. Borrower shall pay TBCC the fees set forth in the Schedule.
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2.3. Calculations. All interest and fees under this Agreement shall be
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calculated on the basis of a year of 360 days for the actual number of days
elapsed in the period for which such interest or fees are payable.
2.4. Taxes. Any and all payments by Borrower under this Agreement or any
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other Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings and penalties, interest and all other liabilities with respect
thereto, excluding in the case of TBCC, taxes imposed on its net income and
franchise taxes imposed on it by the jurisdiction under the laws of which TBCC
is organized or any political subdivision thereof.
3. SECURITY.
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3.1. Grant of Security Interest. To secure the payment and performance when
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due of all of the Obligations. Borrower hereby grants to TBCC a security
interest in all of its present and future Receivables, Investment Property,
Inventory, Equipment, Other Property, and other Collateral, wherever located.
3.2. Other Liens: Location of Collateral. Borrower represents, warrants and
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covenants that all of the Collateral is, and will at all times continue to be,
free and clear of all Liens, other than Permitted Liens and Liens in favor of
TBCC. All Collateral is and will continue to be maintained at the locations
shown on the Schedule.
3.3. Receivables.
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(a) Schedules and Other Actions. As often as requested by TBCC, Borrower
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shall execute and deliver to TBCC written schedules of Receivables and Eligible
Receivables (but the failure to execute or deliver any schedule shall not affect
or limit TBCC's security interest in all Receivables). On TBCC's request,
Borrower shall also furnish to TBCC copies of invoices to customers and shipping
and delivery receipts. Borrower shall deliver to TBCC the originals of all
letters of credit, notes, and instruments in its favor and such endorsements or
assignments as TBCC may reasonable request and, upon the request of TBCC,
Borrower shall deliver to TBCC all certificated securities with respect to any
Investment Property, with all necessary endorsements, and obtain such account
control agreements with securities intermediaries and take such other action
with respect to any Investment Property, as TBCC shall request, in form and
substance satisfactory to TBCC. Upon request of TBCC Borrower additionally shall
obtain consents from any letter of credit issuers with respect to the assignment
to TBCC of any letter of credit proceeds.
(b) Records Collections. Borrower shall report all customer credits to TBCC,
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on the regular reports to TBCC in the form from time to time specified by TBCC.
Borrower shall notify TBCC of all returns and recoveries of merchandise and of
all all claims asserted with respect to merchandise, on its regular reports to
TBCC. Borrower shall not settle or adjust any dispute or claim, or grant any
discount, credit or allowance or accept any return of merchandise, except in the
ordinary course of its business, without TBCC's prior written consent.
(c) Representations. Borrower represents and warrants to TBCC that each
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Receivable with respect to which Loans are requested by Borrower shall, on the
date each Loan is requested and made, represent an undisputed, bona fide,
existing, unconditional obligation of the account debtor created by the sale,
delivery, and acceptance of goods, the licensing of software or the rendition of
services, in the ordinary course of Borrower's business, and meet the Minimum
eligibility Requirements set forth in Section 9.1(n) below.
3.4. Inventory. Borrower shall maintain full, accurate and complete records
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respecting the Inventory describing the kind, type and quantity of the Inventory
and Borrower's cost therefor, withdrawals therefrom and additions thereto,
including a perpetual inventory for work in process and finished goods.
3.5. Equipment. Borrower shall at all times keep correct and accurate
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records itemizing and describing the location, kind, type, age and condition of
the Equipment, Borrower's cost therefor and accumulated depreciation thereof and
retirements, sales, or other dispositions thereof. Borrower shall keep all of
its Equipment in a satisfactory state of repair and satisfactory operating
condition in accordance with
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TBCC LOAN AND SECURITY AGREEMENT
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industry standards, ordinary wear and tear excepted. No Equipment shall be
annexed or affixed to or become part of any realty, unless the owner of the
realty has executed and delivered a Landlord Waiver in such form as TBCC shall
specify. Where Borrower is permitted to dispose of any Equipment under this
Agreement or by any consent thereto hereafter given by TBCC. Borrower shall do
so at arm's length, in good faith and by obtaining the maximum amount of
recovery practicable therefor and without impairing the operating integrity or
value of the remaining Equipment.
3.6. Investment Property. Borrower shall have the right to retain all
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Investment Property payments and distributions, unless and until a Default or an
Event of Default has occurred. If a Default or an Event of Default exists,
Borrower shall hold all payments on, and proceeds of, and distributions with
respect to, Investment Property in trust for TBCC, and Borrower shall deliver
all such payments, proceeds and distributions to TBCC, immediately upon receipt,
in their original form, duly endorsed, to be applied to the Obligations in such
order as TBCC shall determine. Upon the request of TBCC, any such distributions
and payments with respect to any Investment Property held in any securities
account shall be held and retained in such securities accounts as part of the
Collateral.
3.7. Further Assurances. Borrower will perform any and all steps that TBCC
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may reasonably request to perfect TBCC's security interests in the Collateral,
including, without limitation, executing and filing financing and continuation
statements in form and substance satisfactory to TBCC. TBCC is hereby authorized
by Borrower to sign Borrower's name or file any financing statements or similar
documents or instruments covering the Collateral whether or not Borrower's
signature appears thereon. Borrower agrees, from time to time, at TBCC's
request, to file notices of Liens, financing statements, similar documents or
instruments, and amendments, renewals and continuations thereof, and cooperate
with TBCC, in connection with the continued perfection and protection of the
Collateral. If any Collateral is in the possession or control of any Person
other than a public warehouseman where the warehouse receipt is in the name of
or held by TBCC, Borrower shall notify such Person of TBCC's security interest
therein and, upon request, instruct such Person or Persons to hold all such
Collateral for the account of TBCC and subject to TBCC's instructions. If so
requested by TBCC, Borrower will deliver to TBCC warehouse receipts covering any
Collateral located in warehouses showing TBCC as the beneficiary thereof and
will also cause the warehouseman to execute and deliver such agreements as TBCC
may request relating to waivers of liens by such warehouseman and the release of
the Inventory to TBCC on its demand. Borrower shall defend the Collateral
against all claims and demands of all Persons.
3.8. Power of Attorney. Borrower hereby appoints and constitutes TBCC as
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Borrower's attorney-in-fact (i) to request at any time from account debtors
verification of information concerning Receivables and the amount owing thereon,
(ii) upon the occurrence and during the continuance of an Event of Default, to
convey any item of Collateral to any purchaser thereof, (iii) to give or sign
Borrower's name to any notices or statements necessary or desirable to create or
continue the Lien on any Collateral granted hereunder, (iv) to execute and
deliver to any securities intermediary or other Person any entitlement order,
account control agreement or other notice, document or instrument with respect
to any Investment Property, and (v) to make any payment or take any act
necessary or desirable to protect or preserve any Collateral. TBCC's authority
hereunder shall include, without limitation, the authority to execute and give
receipt for any certificate of ownership or any document, transfer title to any
item of Collateral and take any other actions arising from or incident to the
powers granted to TBCC under this Agreement. This power of attorney is coupled
with an interest and is irrevocable.
4. Representations and Warranties of Borrower. Borrower represents and
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warrants as follows:
4.1. Organization, Good Standing and Qualification. Borrower (i) is a
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corporation duly organized, validly existing and in good standing under the laws
of the State set forth above, (ii) has the corporate power and authority to own
its properties and assets and to transact the businesses in which it is engaged
and (iii) is duly qualified, authorized to do business and in good standing in
each jurisdiction where it is engaged in business, except to the extent that the
failure to so qualify or be in good standing would not have a Material Adverse
Effect.
4.2. Locations of Offices, Records and Collateral. The address of the
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principal place of business and chief executive office of Borrower is, and the
books and records of Borrower and all of its chattel paper and records relating
to Collateral are maintained exclusively in the possession of Borrower at, the
address of Borrower specified in the heading of this Agreement. Borrower has
places of business, and Collateral is located, only at such address and at the
addresses set forth in the Schedule and at any additional locations reported to
TBCC as provided in Section 5.8(c) as to which TBCC has taken all necessary
action to perfect and protect its security interests in the Collateral at any
such locations.
4.3. Authority. Borrower has the requisite corporate power and authority to
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execute, deliver and perform its obligations under each of the Loan Documents.
All corporate action necessary for the execution, delivery and performance by
Borrower on the Loan Documents has been taken.
4.4. Enforceability. This Agreement is, and, when executed and delivered,
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each other Loan Document will be, the legal, valid and binding obligation of
Borrower enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
4.5. No conflict. The execution, delivery and performance of each Loan
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Document by Borrower does not and will not contravene (i) any of the Governing
Documents, (ii) any Requirement of Law or (iii) any Material Contract
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TBCC LOAN AND SECURITY AGREEMENT
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and will not result in the imposition of any Liens other than in favor of TBCC.
4.6. Consents and Filings. No consent, authorization or approval of, or
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filing with or other act by, any shareholders of Borrower or any Governmental
Authority or other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement or any other
Loan Document, the consummation of the transactions contemplated hereby or
thereby or the continuing operations of Borrower following such consummation,
except (i) those that have been obtained or made, (ii) the filing of financing
statements under the Uniform Commercial Code and (iii) any necessary filings
with the U.S. Copyright Office and the U.S. Patent and Trademark Office.
4.7. Solvency. Borrower is Solvent and will be Solvent upon the completion
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of all transactions contemplated to occur on or before the date of this
Agreement (including, without limitation, the Loans to be made on the date of
this Agreement).
4.8. Financial Data. Borrower has provided to TBCC complete and accurate
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Financial Statements, which have been prepared in accordance with ▇▇▇▇
consistently applied throughout the periods involved and fairly present the
financial position and results of operations of Borrower for each of the periods
covered, subject, in the case of any quarterly financial statements, to normal
year-end adjustments and the absence of notes. Borrower has no Contingent
Obligation or liability for taxes, unrealized losses, unusual forward or long-
term commitments or long-term leases, which is not reflected in such Financial
Statements or the footnotes thereto. Since the last date covered by such
Financial Statements, there has been no sale, transfer or other disposition by
Borrower of any material part of its business or property and no purchase or
other acquisition of any business or property (including any capital stock of
any other Person) material in relation to the financial condition of Borrower at
said date. Since said date, (i) there has been no change, occurrence,
development or event which has had or could reasonably be expected to have a
Material Adverse Effect and (ii) none of the capital stock of Borrower has been
redeemed, retired, purchased or otherwise acquired for value by Borrower.
4.9. Accuracy and Completeness of Information. All data, reports and
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information previously, now or hereafter furnished by or on behalf of Borrower
to TBCC or the Auditors are or will be true and accurate in all material
respects on the date as of which such data, reports and information are dated or
certified, and not incomplete by omitting to state any material fact necessary
to make such data, reports and information not materially misleading at such
time. There are no facts now known to Borrower which individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect and
which have not been disclosed in writing to TBCC.
4.10. No Joint Ventures Partnerships or Subsidiaries. Borrower is not
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engaged in any joint venture or partnership with any other Person. Borrower has
no Subsidiaries.
4.11. Corporate and Trade Name. During the past five years, Borrower has not
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been known by or used any other corporate, trade or fictitious name except for
its name as set forth on the signature page of this Agreement and the other
names specified in the Schedule.
4.12. No Actual or Pending Material Modification of Business. There exists
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no actual or, to the best of Borrower's knowledge after due inquiry, threatened
termination, cancellation or limitation of, or any modification or change in the
business relationship of Borrower with any customer or group of customers whose
purchases individually or in the aggregate are material to the operation of
Borrower's business or with any material supplier.
4.13. No Broker's or Finder's Fees. No broker or finder brought about this
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Agreement or the Loans. No broker's or finder's fees or commissions will be
payable by Borrower to any Person in connection with the transactions
contemplated by this Agreement.
4.14. Taxes and Tax Returns. Borrower has properly completed and timely
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filed all income tax returns it is required to file. The information filed is
complete and accurate in all material respects. All deductions taken in such
income tax returns are appropriate and in accordance with applicable laws and
regulations, except deductions that may have been disallowed but are being
challenged in good faith and for which adequate reserves have been made in
accordance with GAAP. All taxes, assessments, fees and other governmental
charges for periods beginning prior to the date of this Agreement have been
timely paid (or, if not yet due, adequate reserves therefor have been
established in accordance with GAAP) and Borrower has no liability for taxes in
excess of the amounts so paid or reserves so established. No deficiencies for
taxes have been claimed, proposed or assessed by any taxing or other
Governmental Authority against Borrower and no notice of any tax Lien has been
filed. There are no pending or threatened audits, investigations or claims for
or relating to any liability for taxes and there are no matters under discussion
with any Governmental Authority which could result in an additional liability
for taxes. No extension of a statute of limitations relating to taxes,
assessments, fees or other governmental charges is in effect with respect to
Borrower. Borrower is not a party to and does not have any obligations under any
written tax sharing agreement or agreement regarding payments in lieu of taxes.
4.15. No Judgments or Litigation. Except as set forth in the Schedule, no
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judgments, orders, writs or decrees are outstanding against Borrower, nor is
there now pending or, to the knowledge of Borrower after due inquiry, threatened
litigation, contested claim, investigation, arbitration, or governmental
proceeding by or against Borrower that (i) could individually or in the
aggregate be likely in the reasonable business judgment of TBCC to have a
Material Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Agreement, any other Loan Document or the consummation of
the transactions contemplated hereby or thereby.
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4.16. Investments: Contracts. Borrower (i) has not committed to make any
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Investment; (ii) is not a party to any indenture, agreement, contract,
instrument or lease or subject to any charter, by-law or other corporate
restriction or any injunction, order, restriction or decree, which would
materially and adversely affect its business, operations, assets or financial
condition; (iii) is not a party to any take or pay contract as to which it is
the purchaser; or (iv) has no material contingent or long-term liability,
including management contracts (excluding employment contracts of full-time
individual officers or employees), which could have a Material Adverse Effect.
4.17. No Defaults: Legal Compliance. Borrower is not in default under any
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term of any Material Contract or in violation of any Requirement of Law, nor is
Borrower subject to any investigation with respect to a claimed violation of any
Requirement of Law.
4.18. Rights in Collateral: Priority of Liens. All Collateral is owned or
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leased by Borrower, free and clear of any and all Liens in favor of third
parties, other than Permitted Liens. The Liens granted to TBCC pursuant to the
Loan Documents constitute valid, enforceable and perfected first-priority Liens
on the Collateral, except for Permitted Liens.
4.19. Intellectual Property. Set forth in the written Representations and
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Warranties of Borrower previously delivered to TBCC is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights
(registered and unregistered), and all applications therefor and licenses
thereof, of Borrower. Borrower owns or licenses all material patents,
trademarks, service-marks, logos, tradenames, trade secrets, know-how,
copyrights, or licenses and other rights with respect to any of the foregoing,
which are necessary or advisable for the operation of its business as presently
conducted or proposed to be conducted. To the best of its knowledge after due
inquiry, Borrower has not infringed any patent, trademark, service-▇▇▇▇,
tradename, copyright, license or other right owned by any other Person by the
sale or use of any product, process, method, substance, part or other material
presently contemplated to be sold or used, where such sale or use would
reasonably be expected to have a Material Adverse Effect and no claim or
litigation is pending, or to the best of Borrower's knowledge, threatened
against or affecting Borrower that contests its right to sell or use any such
product, process, method, substance, part or other material.
4.20. Labor Matters. There are no existing or threatened strikes, lockouts
-------------
or other disputes relating to any collective bargaining or similar agreement to
which Borrower is a party which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
4.21. Licenses and Permits. Borrower has obtained and holds in full force
--------------------
and effect, all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights and
approvals which are necessary or advisable for the operation of its business as
presently conducted and as proposed to be conducted, except where the failure to
possess any of the foregoing (individually or in the aggregate) would not have a
Material Adverse Effect.
4.22. Government Regulation. Borrower is not subject to regulation under the
---------------------
Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940, or any other
Requirement of Law that limits its ability to incur indebtedness or its ability
to consummate the transactions contemplated by this Agreement and the other Loan
Documents.
4.23. Business and Properties. The business of Borrower is not affected by
-----------------------
any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that could reasonably be expected
to have a Material Adverse Effect.
4.24. Affiliate Transactions. Borrower is not a party to or bound by any
----------------------
agreement or arrangement (whether oral or written) to which any Affiliate of
Borrower is a party except (i) in the ordinary course of and pursuant to the
reasonable requirements of the business of Borrower and (ii) upon fair and
reasonable terms no less favorable to Borrower than it could obtain in a
comparable arm's-length transaction with an unaffiliated Person.
4.25. Survival of Representations. All representations made by Borrower in
---------------------------
this Agreement and in any other Loan Document executed and delivered by it in
connection herewith shall survive the execution and delivery hereof and thereof
and the closing of the transactions contemplated hereby and thereby.
5. AFFIRMATIVE COVENANTS OF THE BORROWER. Until termination of this Agreement
-------------------------------------
and payment and satisfaction of all Obligations:
5.1. Corporate Existence. Borrower shall (i) maintain its corporate
-------------------
existence, (ii) maintain in full force and effect all material licenses, bonds,
franchises, leases, trademarks, qualifications and authorizations to do
business, and all material patents, contracts and other rights necessary or
advisable to the profitable conduct of its business, and (iii) continue in, and
limit its operations to, the same lines of business as presently conducted by
it.
5.2. Maintenance of Property. Borrower shall keep all property useful and
-----------------------
necessary to its business in good working order and condition (ordinary wear and
tear excepted) in accordance with its past operating practices.
5.3. Affiliate Transactions. Borrower shall conduct transactions with any of
----------------------
its Affiliates on an arm's-length basis or other basis no less favorable to
Borrower and which are approved by the board of directors of Borrower.
5.4. Taxes. Borrower shall pay when due (i) all tax assessments, and other
-----
governmental charges and levies imposed against it or any of its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon its
property; provided, however, that, unless such tax as-
-------- -------
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TBCC LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
sessment, charge, levy or claim has become a Lien on any of the property of
Borrower, it need not be paid if it is being contested in good faith, by
appropriate proceedings diligently conducted and an adequate reserve or other
appropriate provision shall have been made therefor as required in accordance
with GAAP.
5.5. Requirements of Law. Borrower shall comply with all Requirements of Law
-------------------
applicable to it, including, without limitation, all applicable Federal, State,
local or foreign laws and regulations, including, without limitation, those
relating to environmental matters, employee matters, the Employee Retirement
Income Security Act of 1974, and the collection, payment and deposit of
employees' income, unemployment and social security taxes, provided that
--------
Borrower shall not be deemed in violation hereof if Borrower's failure to comply
with any of the foregoing would not require more than $50,000 to cure the same.
5.6. Insurance. Borrower shall maintain public liability insurance, business
---------
interruption insurance, third party property damage insurance and replacement
value insurance on its assets (including the Collateral) under such policies of
insurance, with such insurance companies, in such amounts and covering such
risks as are at all times satisfactory to TBCC in its commercially reasonable
judgment, all of which policies covering the Collateral shall name TBCC as an
additional insured and lender loss payee in case of loss, and contain other
provisions as TBCC may reasonably require to protect fully TBCC's interest in
the Collateral and any payments to be made under such policies.
5.7. Books and Records: Inspections. Borrower shall (i) maintain books and
------------------------------
records (including computer records) pertaining to the Collateral in such
detail, form and scope as is consistent with good business practice and (ii)
provide TBCC and its agents access to the premises of Borrower at any time and
from time to time, during normal business hours and upon reasonable notice under
the circumstances, and at any time on and after the occurrence of a Default or
Event of Default, for the purposes of (A) inspecting and verifying the
Collateral, (B) inspecting and copying (at Borrower's expense) any and all
records pertaining thereto, and (C) discussing the affairs, finances and
business of Borrower with any officer, employee or director of Borrower or with
the Auditors. Borrower shall reimburse TBCC for the reasonable travel and
related expenses of TBCC's employees or, at TBCC's option, of such outside
accountants or examiners as may be retained by TBCC to verify or inspect
Collateral, records or documents of Borrower on a regular basis or for a special
inspection if TBCC deems the same appropriate. If TBCC's own employees are used,
Borrower shall also pay therefor $600 per person per day (or such other amount
as shall represent TBCC's then current standard charge for the same), or, if
outside examiners or accountants are used, Borrower shall also pay TBCC such sum
as TBCC may be obligated to pay as fees therefor.
5.8. Notification Requirements. Borrower shall give TBCC the following
-------------------------
notices and other documents:
(a) Notice of Defaults. Borrower shall give TBCC written notice of any
------------------
Default or Event of Default within two Business Days after becoming aware of the
same.
(b) Proceedings or Adverse Changes. Borrower shall give TBCC written notice
------------------------------
of any of the following, promptly, and in any event within five Business Days
after Borrower becomes aware of any of the following: (i) any proceeding being
instituted or threatened by or against it in any federal, state, local or
foreign court or before any commission or other regulatory body involving a sum,
together with the sum involved in all other similar proceedings, in excess of
$50,000 in the aggregate, (ii) any order, judgment or decree being entered
against Borrower or any of its properties or assets involving a sum, together
with the sum of all other orders, judgments or decrees, in excess of $50,000 in
the aggregate, and (iii) any actual or prospective change, development or event
which has had or could reasonably be expected to have a Material Adverse Effect.
(c) Change of Name or Chief Executive Office: Opening Additional Places of
----------------------------------------------------------------------
Business. Borrower shall give TBCC at least 30 days prior written notice of any
--------
change of Borrower's corporate name or its chief executive office or of the
opening of any additional place of business.
(d) Casualty Loss. Borrower shall (i) provide written notice to TBCC,
-------------
within ten Business Days, of any material damage to, the destruction of or any
other material loss to any asset or property owned or used by Borrower other
than any such asset or property with a net book value (individually or in the
aggregate) less than $10,000 or any condemnation, confiscation or other taking,
in whole or in part, or any event that otherwise diminishes so as to render
impracticable or unreasonable the use of such asset or property owned or used by
Borrower together with the amount of the damage, destruction, loss or diminution
in value and (ii) diligently file and prosecute its claim or claims for any
award or payment in connection with any of the foregoing.
(e) Intellectual Property. Borrower shall promptly give TBCC written notice
---------------------
of any copyright registration made by it, any rights Borrower may obtain to any
copyrightable works, new trademarks or any new patentable inventions, and of any
renewal or extension of any trademark registration, or if it shall otherwise
become entitled to the benefit of any patent or patent application or trademark
or trademark application.
(f) Deposit Accounts and Security Accounts. Borrower shall promptly give
--------------------------------------
TBCC written notice of the opening of any new bank account or other deposit
account, and any new securities account.
5.9. Qualify to Transact Business. Borrower shall qualify to transact
----------------------------
business as a foreign corporation in each jurisdiction where the nature or
extent of its business or the ownership of its property requires it to be so
qualified or authorized and where failure to qualify or be authorized would have
a Material Adverse Effect.
5.10. Financial Reporting. Borrower shall timely deliver to TBCC the
-------------------
following financial information: the
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TBCC LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
information set forth in the Schedule, and, when requested by TBCC in its good-
faith judgment, any further information respecting Borrower or any Collateral.
Borrower authorizes TBCC to communicate directly with its officers, employees
and Auditors and to examine and make abstracts from its books and records.
Borrower authorizes its Auditors to disclose to TBCC any and all financial
statements, work papers and other information of any kind that they may have
with respect to Borrower and its business and financial and other affairs.
Borrower shall deliver a letter addressed to the Auditors requesting them to
comply with the provisions of this paragraph when requested by TBCC.
5.11. Payment of Liabilities. Borrower shall pay and discharge, in the
----------------------
ordinary course of business, all Indebtedness, except where the same may be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto have been provided on the books and records of Borrower in
accordance with GAAP.
5.12. Patents, Trademarks, Etc. Borrower shall do and cause to be done all
------------------------
things necessary to preserve, maintain and keep in full force and effect all of
its registrations of trademarks, service marks and other marks, trade names and
other trade rights, patents, copyrights and other intellectual property in
accordance with prudent business practices.
5.13. Proceeds of Collateral. Without limiting any of the other terms of
----------------------
this Agreement, and without implying any consent to any sale or other transfer
of Collateral in violation of any provision of this Agreement, Borrower shall
deliver to TBCC all proceeds of any sale or other transfer or disposition of any
Collateral, immediately upon receipt of the same and in the same form as
received, with any necessary endorsements, and Borrower will not commingle any
such proceeds with any of its other funds or property, but will segregate them
from the other assets of Borrower and will hold them in trust and for the
account and as the property of TBCC.
5.14. Solvency. Borrower shall be Solvent at all times.
--------
6. NEGATIVE COVENANTS. Until termination of this Agreement and payment and
------------------
satisfaction of all Obligations
6.1. Contingent Obligations. Borrower will not directly or indirectly,
----------------------
incur, assume, or suffer to exist any Contingent Obligation, excluding
indemnities given in connection with this Agreement or the other Loan Documents
in favor of TBCC or in connection with the sale of Inventory or other asset
dispositions permitted hereunder.
6.2. Corporate Changes. Borrower will not, directly or indirectly, merge
-----------------
or consolidate with any Person, or liquidate or dissolve (or suffer any
liquidation or dissolution).
6.3. Change in Nature of Business. Borrower will not at any time make any
----------------------------
material change in the lines of its business as carried on at the date of this
Agreement or enter into any new line of business.
6.4. Sales of Assets. Borrower will not, directly or indirectly, in any
---------------
fiscal year, sell, transfer or otherwise dispose of any assets, or grant any
option or other right to purchase or otherwise acquire any assets other than (i)
Equipment with an aggregate value of less the $25,000, (ii) sales of Inventory
in the ordinary course of business and (iii) licenses or sublicenses of
intellectual property in the ordinary course of Borrower's business.
6.5. Cancellation of Debt. Borrower will not cancel any claim or debt owed
--------------------
to it, except in the ordinary course of business.
6.6 Loans to Other Persons. Borrower will not at any time make loans or
----------------------
advance any credit (except to trade debtors in the ordinary course of business)
to any Person in excess of * in the aggregate at any time for all such
loans**
* $50,000
** UNLESS CONSENTED TO IN WRITING BY lENDER, WHICH CONSENT SHALL NOT BE
UNREASONABLY BE WITHHELD.
6.7. Liens. Borrower will not, directly or indirectly, at any time create,
-----
incur, assume or suffer to exist any Lien on or with respect to any of the
Collateral, other than: Liens created hereunder and by any other Loan Document;
and Permitted Liens.
6.8 Dividends Stock Redemptions. Borrower will not, directly or
---------------------------
indirectly, pay any dividends or distributions on, purchase, redeem or retire
any shares of any class of its capital stock or any warrants, options or rights
to purchase any such capital stock, whether now or hereafter outstanding
(Stock), or make any payment on account of or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of its Stock, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Borrower, except for dividends paid solely in stock of the
Borrower*.
* OTHER THAN THE FOLLOWING: (1) REPURCHASE OF SHARES FROM EMPLOYEES OF
BORROWER IN THE ORDINARY COURSE OF BUSINESS; (2) THE RETIREMENT OF THE CLASSES
OF PREFERRED STOCK OF THE BORROWER, WHICH SHALL CONSTITUTE A NON-CASH
TRANSACTION; AND (3) AS THE LENDER OTHERWISE CONSENTS TO FROM TIME TO TIME
6.9. Investments in Other Persons. Borrower will not, directly or
----------------------------
indirectly, at any time make or hold any Investment in any Person (whether in
cash, securities or other property of any kind) other than*
* AS SET FORTH IN THE WRITTEN INVESTMENT POLICY OF THE COMPANY AS PROVIDED TO
THE LENDER ON OR PRIOR TO THE DATE HEREOF
6.10 Partnerships; Subsidiaries; Joint Ventures; Management Contracts.
----------------------------------------------------------------
Borrower will not at any time create any direct or indirect Subsidiary, enter
into any joint
-8-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
venture or similar arrangement or become a partner in any general or limited
partnership or enter into any management contract (other than an employment
contract for the employment of an officer or employee entered into in the
regular course of Borrower's business) permitting third party management rights
with respect to Borrower's business.*
* , OTHER THAN AS CONSENTED TO BY THE LENDER, WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD.
6.11. Fiscal Year. Borrower will not change its fiscal year.
-----------
6.12. Accounting Changes. Borrower will not at any time make or permit any
------------------
change in accounting policies or reporting practices, except as required by
GAAP.
6.13. Broker's or Finder's Fees. Borrower will not pay or incur any broker's
-------------------------
or finder's fees in connection with this Agreement or the transactions
contemplated hereby.
6.14. Unusual Terms of Sale. Borrower will not sell goods or products on
---------------------
extended terms, consignment terms, on a progress billing or ▇▇▇▇ and hold basis,
or on any other unusual terms.
6.15. Amendments or Material Contracts. Borrower will not amend, modify,
--------------------------------
cancel or terminate, or permit the amendment, modification, cancellation or
termination of, any Material Contract, if such amendment, modification,
cancellation or termination could have a Material Adverse Effect.
6.16. Sale and Leaseback Obligations. Borrower will not at any time create,
------------------------------
incur or assume any obligations as lessee for the rental of real or personal
property in connection with any sale and leaseback transaction.
6.17. Acquisition of Stock or Assets. Borrower will not acquire or commit or
------------------------------
agree to acquire all or any stock, securities or assets of any other Person
other than Inventory and Equipment acquired in the ordinary course of business*.
* , EXCEPT WITH THE WRITTEN CONSENT OF THE LENDER.
7. EVENTS OF DEFAULT.
-----------------
7.1. Events of Default. The occurrence of any of the following events shall
-----------------
constitute an Event of Default:
(a) Borrower shall fail to pay any principal, interest, fees, expenses or
other Obligations when payable, whether at stated maturity, by acceleration, or
otherwise; or
(b) Borrower shall default in the performance or observance of any
agreement, covenant, condition, provision or term contained in Section 1.1, 1.2,
1.4, 3.3, 5.7, 5.13, 6 (and its Sections and subsections), or 8.1 of this
Agreement, or Borrower shall fail to perform any nonmonetary Obligation which by
its nature cannot be cured, or
(c) Borrower shall default in the performance or observance of any other
agreement, covenant, condition, provision or term of this Agreement (other than
those referred to in Section 7.1(a) above or Section 7.1(b) above) or any other
Loan Document, and such failure continues uncured for a period of * Business
Days after the date it occurs; or
* TEN DAYS
(d) Borrower or any Guarantor shall dissolve, wind up or otherwise cease to
conduct its business; or
(e) Borrower or any Guarantor shall become the subject of (i) an Insolvency
Event except as set forth in clause (e) of the definition of Insolvency Event or
(ii) an Insolvency Event as set forth in clause (e) of the definition of
Insolvency Event that is not dismissed within sixty days; or
(f) any representation or warranty made by or on behalf of Borrower or any
Guarantor to TBCC, under this Agreement or otherwise, shall be incorrect or
misleading in any material respect when made or deemed made; or
(g) A change in the ownership or control of more than 20% of the voting
stock of the Borrower compared to such ownership on the date of this Agreement*
*EXCEPT AS THE lENDER MAY OTHERWISE AGREE TO FROM TIME TO TIME AND EXCEPT AS
OCCURS UPON THE CONSUMMATION INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE
BORROWER
(h) any judgment or order for the payment of money shall be rendered
against Borrower and shall not be stayed, vacated, bonded or discharged within
thirty days; or
(i) any defined "Event of Default" shall occur under any other Loan
Document; or Borrower or any Guarantor shall deny or disaffirm its obligations
under any of the Loan Documents or any Liens granted in connection therewith or
shall otherwise challenge any of its obligations under any of the Loan
Documents, or any Liens granted in any of the Collateral shall be determined to
be void, voidable or invalid, are subordinated or are not given the priority
contemplated by this Agreement; or
(j) any Loan Document shall for any reason cease to create a valid and
perfected Lien on the Collateral purported to be covered thereby, of first
priority (except for Permitted Liens); or
(k) the Auditors for Borrower shall deliver a Qualified opinion on any
Financial Statement, or
(l) Borrower or any Guarantor (i) shall fail to pay any Indebtedness owing
to TBCC under any other agreement with TBCC or note or instrument in favor of
TBCC, when due (whether at scheduled maturity or by required prepayment,
acceleration, demand or otherwise), or (ii) shall otherwise be in breach of or
default in any of its obligations under any such agreement, note or instrument
with respect to any such Indebtedness; or
(m) Borrower or any Guarantor (i) shall fail to pay any Indebtedness in
excess of $50,000 owing to any Person other than TBCC or any interest or premium
thereon, when due (whether at scheduled maturity or by required prepayment,
acceleration, demand or otherwise), or (ii) shall
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TBCC LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
otherwise be in breach or default in any of its obligations under any agreement
with respect to any such Indebtedness, if the effect of such breach, default or
failure to pay is to cause such Indebtedness to become due or redeemed or permit
the holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to declare such Indebtedness due or require such
Indebtedness to be redeemed prior to its stated maturity, or
(n) the occurrence of any event or condition that, in TBCC's judgment,
could reasonably be expected to have a Material Adverse Effect.
TBCC may cease making any Loans hereunder during any of the above cure periods,
and thereafter if any Event of Default has occurred and is continuing.
7.2 Remedies. Upon the occurrence and during the continuance of an Event of
--------
Default, TBCC shall have all rights and remedies under applicable law and the
Loan Documents, and TBCC may do any or all of the following.
(a) Declare all Obligations to be immediately due and payable (except with
respect to any Event of Default with respect to Borrower set forth in Section
7.1(e), in which case all Obligations shall automatically become immediately due
and payable) without presentment, demand, protest or any other action or
obligation of TBCC;
(b) Cease making any Loans or other extensions of credit to Borrower of any
kind;
(c) Take possession of all documents, instruments, files and records
(including the copying of any computer records) relating to the Receivables or
other Collateral and use (at the expense of Borrower) such supplies or space of
Borrower at Borrower's places of business necessary to administer and collect
the Receivables and other Collateral;
(d) Accelerate or extend the time of payment, compromise, issue credits or
bring suit on the Receivables and other Collateral (in the name of Borrower or
TBCC) and otherwise administer and collect the Receivables and other Collateral;
(e) Collect, receive, dispose of and realize upon any Investment Property,
including withdrawal of any and all funds from any securities accounts;
(f) Sell, assign and deliver the Receivables and other Collateral, with or
without advertisement, at public or private sale, for cash, on credit or
otherwise, subject to applicable law; and
(g) Foreclose on the security interests created pursuant to the Loan
Documents by any available procedure, take possession of any or all of the
Collateral, with or without judicial process and enter any premises where any
Collateral may be located for the purpose of taking possession of or removing
the same.
(h) TBCC may bid or become a purchaser at any sale, free from any right of
redemption, which right is expressly waived by Borrower, if permitted under
applicable law. If notice of intended disposition of any Collateral is required
by law, it is agreed that ten days' notice shall constitute reasonable
notification. Borrower will assemble the Collateral and make it available at
such locations as TBCC may specify, whether at the premises of Borrower or
elsewhere, and will make available to TBCC the premises and facilities of
Borrower for the purpose of TBCC's taking possession of or removing the
Collateral or putting the Collateral in salable form.
(i) Borrower recognizes that TBCC may be unable to make a public sale of
any or all of the Investment Property, by reasons of prohibitions contained in
applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonable sale.
7.3. Receivables. Upon the occurrence and during the continuance of an Event
-----------
of Default, or at any time that TBCC believes in good faith that fraud has
occurred or that Borrower has failed to deliver the proceeds of Receivables or
other Collateral to TBCC as required by this Agreement or any other Loan
Document, TBCC may (i) settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which it considers advisable, and (ii) notify
account debtors on the Receivables and other Collateral that the Receivables and
Collateral have been assigned to TBCC, and that payments in respect thereof
shall be made directly to TBCC. If an Event of Default has occurred and is
continuing or TBCC reasonably believes in good faith that fraud has occurred, or
that Borrower has failed to deliver the proceeds of Receivables or other
Collateral to TBCC as required by this Agreement or any other Loan Document,
Borrower hereby irrevocably authorizes and appoints TBCC, or any Person TBCC may
designate, as its attorney-in-fact, at Borrower's sole cost and expense, to
exercise, all of the following powers, which are coupled with an interest and
are irrevocable, until all of the Obligations have been indefeasibly paid and
satisfied in full in cash: (A) to receive, take, endorse, sign, assign and
deliver, all in the name of TBCC or Borrower, any and all checks, notes, drafts,
and other documents or instruments relating to the Collateral; (B) to receive,
open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as TBCC
may designate; and (C) to take or bring, in the name of TBCC or Borrower, all
steps, actions, suits or proceedings deemed by TBCC necessary or desirable to
enforce or effect collection of Receivables and other Collateral or file and
sign Borrower's name on a proof of claim in bankruptcy or similar document
against any obligor of Borrower.
7.4. Right of Setoff. In addition to all rights of offset that TBCC may have
---------------
under applicable law, upon the occurrence and during the continuance of any
Event of Default, and whether or not TBCC has made any demand or the
Obligations of Borrower have matured, TBCC shall have the right to appropriate
and apply to the payment of the Obligations of Borrower all deposits and other
obligations then or thereafter owing by TBCC to or for the credit or the account
of Borrower. In the event that TBCC exercises any of its rights under this
Section, TBCC shall
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TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
provide notice to Borrower of such exercise, provided that the failure to give
such notice shall not affect the validity of the exercise of such rights.
7.5. License for Use of Software and Other Intellectual Property. After the
-----------------------------------------------------------
occurrence and during the continuance of an Event of Default, unless expressly
prohibited by any licensor thereof, TBCC is hereby granted a license to use all
computer software programs, data bases, processes, trademarks, tradenames and
materials used by Borrower in connection with its businesses or in connection
with the Collateral.
7.6. No Marshalling; Deficiencies; Remedies Cumulative. The net cash proceeds
-------------------------------------------------
resulting from TBCC's exercise of any of its rights with respect to Collateral,
including any and all Collections (after deducting all of TBCC's reasonable
expenses related thereto), shall be applied by TBCC to such of the Obligations
in such order as TBCC shall elect in its sole and absolute discretion, whether
due or to become due. Borrower shall remain liable to TBCC for any deficiencies
and TBCC shall remit to Borrower or its successor or assign, any surplus
resulting therefrom. The remedies specified in this Agreement are cumulative,
may be exercised in such order and with respect to such Collateral as TBCC may
deem desirable and are not intended to be exclusive, and the full or partial
exercise of any of them shall not preclude the full or partial exercise of any
other available remedy under this Agreement, under any other Loan Document, at
equity or at law.
7.7. Waivers. Borrower hereby waives any bonds, security or sureties required
-------
by any statute, rule or any other law as an incident to any taking of possession
by TBCC of any Collateral. Borrower also waives any damages (direct,
consequential or otherwise) occasioned by the enforcement of TBCC's rights under
this Agreement or any other Loan Document including the taking of possession of
any Collateral or the giving of notice to any account debtor or the collection
of any Receivable or other Collateral (other than damages that are the result of
acts or omissions constituting gross negligence or willful misconduct of TBCC).
These waivers and all other waivers provided for in this Agreement and the other
Loan Documents have been negotiated by the parties and Borrower acknowledges
that it has been represented by counsel of its own choice and has consulted such
counsel with respect to its rights hereunder.
7.8. Right to Make Payments. In the event that Borrower shall fail to purchase
----------------------
or maintain insurance required hereunder, or to pay any tax, assessment,
government charge or levy, except as the same may be otherwise permitted
hereunder, or in the event that any Lien prohibited hereby shall not be paid in
full or discharged, or in the event that Borrower shall fail to perform or
comply with any other covenant, promise or obligation to TBCC hereunder or
under any other Loan Document, TBCC may (but shall not be required to) perform,
pay, satisfy, discharge or bond the same for the account of Borrower, and all
amounts so paid by TBCC shall be treated as a Loan hereunder to Borrower and
shall constitute part of the Obligations.
8. ASSIGNMENTS AND PARTICIPATIONS.
------------------------------
8.1. Assignments. Borrower shall not assign this Agreement or any right or
-----------
obligation hereunder without the prior written consent of TBCC. TBCC may assign
(without the consent of Borrower) to one or more Persons all or a portion of its
rights and obligations under this Agreement and the other Loan Documents.
8.2. Participations. TBCC may sell participations in or to all or a portion of
--------------
its rights and obligations under this Agreement (including, without limitation,
all or a portion of the Loans); provided, however, that TBCC's obligations under
this Agreement shall remain unchanged.
8.3. Disclosure. TBCC may, in connection with any permitted assignment or
----------
participation or proposed assignment or participation pursuant to this
Agreement, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower furnished to TBCC by or on
behalf of Borrower.
9. DEFINITIONS.
-----------
9.1. General Definitions. As used herein, the following terms shall have the
-------------------
meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined):
(a) Affiliate means as to any Person, any other Person who directly or
---------
indirectly controls, is under common control with, is controlled by or is a
director or officer of such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of management or policies (whether through ownership of voting
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person who owns directly or
indirectly twenty percent (20%) or more of the securities having ordinary voting
power for the election of the members of the board of directors or other
governing body of a corporation or twenty percent (20%) or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such
corporation, partnership or other Person.
(b) Agreement means this Loan and Security Agreement, as amended,
---------
supplemented or otherwise modified from time to time.
(c) Auditors means a nationally recognized firm of independent public
--------
accountants selected by Borrower and reasonably satisfactory to TBCC.
(d) Bankruptcy Code means Title 11 of the United States Code entitled
---------------
"Bankruptcy," as that title may be amended from time to time, or any successor
statute .
(e) Borrowing means a borrowing of Loans.
---------
(f) Business Day means any day other than a Saturday, Sunday or any other
------------
day on which commercial banks in Chicago, Illinois are required or permitted by
law to close.
-11-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
(g) Cash Equivalents means (i) securities issued, guaranteed or insured
----------------
by the United States or any of its agencies with maturities of not more than one
year from the date acquired; (ii) certificates of deposit with maturities of not
more than one year from the date acquired, issued by any U.S. federal or state
chartered commercial bank of recognized standing which has capital and
unimpaired surplus in excess of $100,000,000; (iii) investments in money market
funds registered under the Investment Company Act of 1940; and (iv) other
instruments, commercial paper or investments acceptable to TBCC in its sole
discretion.
(h) Collateral means Receivables, Investment Property, Inventory,
----------
Equipment, and Other Property, and all additions and accessions thereto and
substitutions and replacements therefor and improvements thereon, and all
proceeds (whether cash or other property) and products thereof, including,
without limitation, all proceeds of insurance covering the same and all tort
claims in connection therewith, and all records, files, computer programs and
files, data and writings relating to the foregoing, and all equipment containing
the foregoing.
(i) Collections means all cash, funds, checks, notes, instruments, any
-----------
other form of remittance tendered by account debtors in respect of payment of
Receivables and any other payments received by Borrower with respect to any
other Collateral.
(j) Compliance Certificate means a certificate as to compliance with the
----------------------
Obligations, on TBCC's standard form (in effect from time to time).
(k) Contingent Obligations means any direct, indirect, contingent or non-
----------------------
contingent guaranty or obligation for the Indebtedness of another Person, except
endorsements in the ordinary course of business.
(l) Default means any of the events specified in Section 7.1, whether or
-------
not any of the requirements for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
(m) Eligible Inventory means Inventory of Borrower which TBCC in its sole
------------------
discretion deems eligible for borrowing, based on such considerations as TBCC in
its sole discretion may deem appropriate from time to time and less any such
reserves as TBCC, in its sole discretion, may require. Without limiting the fact
that the determination of which Inventory is eligible for borrowing is a matter
of TBCC's sole discretion, the following are the minimum requirements for
Inventory to be Eligible Inventory. (i) the Inventory must consist of finished
goods, in good, new and salable condition which is not perishable, not obsolete
or unmerchantable, and is not comprised of raw materials, work in process,
packaging materials or supplies; (ii) the Inventory must meet all applicable
governmental standards; (iii) the Inventory must have been manufactured in
compliance with the Fair Labor Standards Act; (iv) the Inventory must conform in
all respects to the warranties and representations set forth in this Agreement;
(v) the Inventory must at all times be subject to TBCC's duly perfected, first
priority security interest; and (vi) the Inventory must be in Borrower's
exclusive possession, separately identifiable from goods of others, and situated
at Borrower's chief executive office or at one of the other Borrower locations
set forth on the Schedule. The value of Eligible Inventory shall be computed at
the lower of cost (computed on a "first in, first out" basis) or wholesale
market value.
(n) Eligible Receivables means and includes only those Receivables which
--------------------
TBCC in its sole discretion deems eligible for borrowing, based on such
considerations as TBCC in its sole discretion may deem appropriate from time to
time and less any such reserves as TBCC, in its sole discretion, may require.
Without limiting the fact that the determination of which Receivables are
eligible for borrowing is a matter of TBCC's sole discretion, the following (the
"Minimum Eligibility Requirements") are the minimum requirements for a
--------------------------------
Receivable to be an Eligible Receivable: (i) the Receivable must not be
outstanding for more than 90 days from its invoice date, (ii) the Receivable
must not represent progress ▇▇▇▇▇▇▇▇, or be due under a fulfillment or
requirements contract with the account debtor, (iii) the Receivable must not be
subject to any contingencies (including Receivables arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
account debtor may be conditional) (iv) the Receivable must not be owing from an
account debtor with whom the Borrower has any dispute (whether or not relating
to the particular Receivable), (v) the Receivable must not be owing from an
Affiliate of Borrower, (vi) the Receivable 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 TBCC, or which, fails or goes out of a
material portion of its business, (vii) the Receivable must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to TBCC's satisfaction, with the United States
Assignment of Claims Act), * (ix) the Receivable 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, (x) the Receivable must not violate any
representation or warranty set forth in this Agreement, and (xi) the Receivable
must not be one in which TBCC does not have a first priority, valid, perfected
Lien. Without limiting the generality of the foregoing, Borrower must be in
compliance with all requirements of the Loan Documents regarding registration
with the U.S. Copyright Office of any copyrightable software in order for any
Receivable arising from any licensing of such software to constitute an Eligible
Receivable hereunder. Receivables owing from one account debtor will not be
deemed Eligible Receivables to the extent they exceed 25% of the total eligible
Receivables outstanding. In addition, if more than 50% of the Receivables owing
from an account debtor are outstanding more than 90 days from their invoice date
(without regard to unapplied credits) or are otherwise not
-12-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
eligible Receivables, then all Receivables owing from that account debtor will
be deemed ineligible for borrowing. TBCC may, from time to time, in its sole
discretion, revise the Minimum Eligibility Requirements, upon written notice to
the Borrower.
(o) Equipment means all machinery, equipment, furniture, fixtures,
---------
conveyors, tools, materials, storage and handling equipment, hydraulic presses,
cutting equipment, computer equipment and hardware, including central processing
units, terminals, drives, memory units, printers, keyboards, screens,
peripherals and input our output devices, molds, dies, stamps, vehicles, and
other equipment of every kind and nature and wherever situated now or hereafter
owned by Borrower or in which Borrower may have any interest as lessee or
otherwise (to the extent of such interest), together with all additions and
accessions thereto, all replacements and all accessories and parts therefor, all
manuals, blueprints, know-how, warranties and records in connection therewith,
all rights against suppliers, warrantors, manufacturers, sellers or others in
connection therewith, and together with all substitutes for any of the
foregoing.
(p) Event of Default means the occurrence of any of the events specified
----------------
in Section 7.1.
(q) Financial Statements means the balance sheets, profit and loss
--------------------
statements, statements of cash flow, and statements of changes in intercompany
accounts, if any, for the period specified, prepared in accordance with GAAP and
consistent with prior practices.
(r) GAAP means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board that are applicable to the
circumstances as of the date of determination. Whenever any accounting term is
used herein which is not otherwise defined, it shall be interpreted in
accordance with GAAP.
(s) Good Faith means "good faith" as defined in the Uniform Commercial
----------
Code, from time to time in effect in the State of Illinois.
(t) Governing Documents means the articles or certificate of
-------------------
incorporation and by-laws of Borrower.
(u) Governmental Authority means any nation or government, any state or
----------------------
other political subdivisions thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions thereof or
pertaining thereto.
(v) Guarantor means any present or future guarantor of any or all of the
---------
Obligations.
(w) Indebtedness means, with respect to any Person, as of the date of
------------
determination any indebtedness, liability or obligation of such Person
(including without limitation obligations under capital leases and Contingent
Obligations).
(x) Insolvency Event means, with respect to any Person, the occurrence of
----------------
any of the following: (a) such Person shall be adjudicated insolvent or
bankrupt, or shall generally fail to pay or admit in writing its inability to
pay its debts as they become due, (b) such Person shall seek dissolution or
reorganization or the appointment of a receiver, trustee, custodian or
liquidator for it or a substantial portion of its property, assets or business
or to effect a plan or other arrangement with its creditors, (c) such Person
shall make a general assignment for the benefit of its creditors, or consent to
or acquiesce in the appointment of a receiver, trustee, custodian or liquidator
for a substantial portion of its property, assets or business, (d) such Person
shall file a voluntary petition under any bankruptcy, insolvency or similar law
or take any corporate or similar act in furtherance thereof, or (e) such Person,
or a substantial portion of its property, assets or business shall become the
subject of an involuntary proceeding or petition for its dissolution,
reorganization, and such proceeding is not dismissed or stayed within sixty
days, or the appointment of a receiver, trustee, custodian or liquidator, and
such receiver is not dismissed within sixty days.
(y) Inventory means all present and future goods intended for sale, lease
---------
or other disposition by Borrower including, without limitation, all raw
materials, work in process, finished goods and other retail inventory, goods in
the possession of outside processors or other third parties, goods consigned to
Borrower to the extent of its interest therein as consignee, materials and
supplies of any kind, nature or description which are or might be used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of any such goods, and all documents of title or documents
representing the same.
(z) Investment in any Person means, as of the date of determination
----------
thereof, any payment or contribution, or commitment to make a payment or
contribution, by any Person, including, without limitation, property contributed
or committed to be contributed by any Person, on its account for or in
connection with its acquisition of any stock, bonds, notes, debentures,
partnership or other ownership interest or any other security of the Person in
whom such Investment is made or any evidence of indebtedness by reason of a
loan, advance, extension of credit, guaranty or other similar obligation for any
debt, liability or indebtedness of such Person in whom the Investment is made.
(aa) Investment Property means any and all investment property of
-------------------
Borrower, including all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts and commodity
accounts, and all financial assets held in any securities account or otherwise,
wherever located, and whether now existing or hereafter acquired or arising.
(bb) Lien means any lien, claim, charge, pledge, security interest,
----
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title or other preferential arrangement having substantially the
same economic effect as any of the foregoing, whether voluntary or imposed by
law.
-13-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
(cc) Loan Account has the meaning specified in Section 1.3.
------------
(dd) Loan Documents means this Agreement and all present and future
--------------
documents and instruments delivered or to be delivered by Borrower or any of its
Affiliates or any Guarantor under, in connection with or relating to this
Agreement, as each of the same may be amended, supplemented or otherwise
modified from time to time.
(ee) Loans means the loans and financial accommodations made by TBCC
-----
hereunder.
(ff) Material Adverse Effect means (i) a material adverse effect on the
-----------------------
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, (ii) the impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of TBCC to enforce the Obligations or realize upon the
Collateral or (iii) a material adverse effect on the value of the Collateral or
the amount which TBCC would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of the
Collateral.
(gg) Material Contract means any contract or other arrangement to which
-----------------
Borrower is a party (other than the Loan Documents) for which breach,
nonperformance, cancellation or failure to renew could have a Material Adverse
Effect.
(hh) Obligations means and includes all loans (including the Loans),
-----------
advances, debts, liabilities, obligations, covenants and duties owing by
Borrower to TBCC of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, which may arise under, out
of, or in connection with, this Agreement, any other Loan Document or any other
agreement executed in connection herewith or therewith, whether or not for the
payment of money, whether arising by reason of an extension of credit, opening,
guaranteeing or confirming of a letter of credit, loan, guaranty,
indemnification or in any other manner, whether direct or indirect (including
those acquired by assignment, purchase, discount or otherwise), whether absolute
or contingent, due or to become due, now due or hereafter arising and however
acquired. The term includes, without limitation, all interest (including
interest accruing on or after an Insolvency Event, whether or not an allowed
claim), charges, expenses, commitment, facility, closing and collateral
management fees, letter of credit fees, reasonable attorneys' fees, and any
other sum properly chargeable to Borrower under this Agreement, the other Loan
Documents or any other agreement executed in connection herewith or therewith.
(ii) Other Property means all present and future, instruments, documents,
--------------
documents of title, securities, bonds, notes, promissory notes, drafts,
acceptances, letters of credit and rights to receive proceeds of letters of
credit, deposit accounts, chattel paper, certificates, insurance policies,
insurance proceeds, leases, computer tapes, causes of action, judgments, claims
against third parties, leasehold rights in any personal property, books,
ledgers, files and records, general intangibles (including without limitation,
all contract rights, tax refunds, rights to receive tax refunds, patents, patent
applications, copyrights (registered and unregistered), royalties, licenses,
permits, franchise rights, authorizations, customer lists, rights of
indemnification, contribution and subrogation, computer programs, discs and
software, trade secrets, computer service contracts, trademarks, trade names,
service marks and names, logos, goodwill, deposits, choses in action, designs,
blueprints, plans, know-how, telephone numbers and rights thereto, credits,
reserves, and all forms of obligations whatsoever now or hereafter owing to
Borrower), all property at any time in the possession or under the control of
TBCC, and all security given by Borrower to TBCC pursuant to any other Loan
Document or agreement.
(jj) Permitted Liens means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced and be continuing: (i) Liens for taxes, assessments and other
governmental charges or levies or the claims or demands of landlords, carriers,
warehousemen, mechanics, laborers, materialmen and other like Persons arising by
operation of law in the ordinary course of business for sums which are not yet
due and payable, (ii) deposits or pledges to secure the payment of workmen's
compensation, unemployment insurance or other social security benefits or
obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business (but nothing in this clause (ii) shall permit the
creation of Liens on Receivables, Investment Property, Inventory or Other
Property), (iii) zoning restrictions, easements, encroachments, licenses,
restrictions or covenants on the use of property which do not materially impair
either the use of the property in the operation of the business of Borrower or
the value of the property, (iv) rights of general application reserved to or
vested in any municipality or other governmental, statutory or public authority
to control or regulate property, or to use property in a manner which does not
materially impair the use of the property for the purposes for which it is held
by Borrower, (v) state and municipal Liens for personal property taxes which are
not yet due and payable, and (vi) Purchase Money Liens.
(kk) Person means any individual, sole proprietorship, partnership, joint
------
venture, limited liability company, trust, unincorporated organization, joint
stock company, association, corporation, institution, entity, party or
government (including any division, agency or department thereof) or any other
legal entity, whether acting in an individual, fiduciary or other capacity, and,
as applicable, the successors, heirs and assigns of each.
(ll) Plan means any employee benefit plan, program or arrangement
----
maintained or contributed to by Borrower or with respect to which it may incur
liability.
(mm) Purchase Money Lien means a Lien on any item of Equipment created
-------------------
substantially simultaneously with the acquisition of such Equipment for the
purpose of financing
-14-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
such acquisition, provided that such Lien shall attach only to the Equipment
acquired.
(nn) Qualification or Qualified means, with respect to any report of
------------- ---------
Auditors covering Financial Statements, a material qualification to such report
(i) resulting from a limitation on the scope of examination of such Financial
Statements or the underlying data, (ii) as to the capability of Borrower to
continue operations as a going concern or (iii) which could be eliminated by
changes in Financial Statements or notes thereto covered by such report (such as
by the creation of or increase in a reserve or a decrease in the carrying value
of assets) and which if so eliminated by the making of any such change and after
giving effect thereto would result in a Default or an Event of Default.
(oo) Receivables means all present and future accounts and accounts
-----------
receivable, together with all security therefor and guaranties thereof and all
rights and remedies relating thereto, including any right of stoppage in
transit.
(pp) Requirement of Law means (a) the Governing Documents, (b) any law,
------------------
treaty, rule, regulation, order or determination of an arbitrator, court or
other Governmental Authority or (c) any franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, right or
approval binding on Borrower or any of its property.
(qq) Schedule means the Schedule to this Agreement being signed
--------
concurrently by Borrower and TBCC, as amended from time to time.
(rr) Solvent means when used with respect to any Person that as of the
-------
date as to which such Person's solvency is to be measured: (a) the fair salable
value of its assets is in excess of the total amount of its liabilities
(including contingent liabilities as valued in accordance with applicable law)
as they become absolute and matured, (b) it has sufficient capital to conduct
its business; and (c) it is able to meet its debts as they mature.
(ss) Subsidiary means, as to any Person, a corporation or other entity in
----------
which that Person directly or indirectly owns or controls shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or appoint other managers of such corporation or other
entity.
9.2. Accounting Terms and Determinations. Unless otherwise defined or
-----------------------------------
specified herein, all accounting terms used in this Agreement shall be construed
in accordance with GAAP, applied on a basis consistent in all material respects
with the Financial Statements delivered to TBCC on or before the date of this
Agreement. All accounting determinations for purposes of determining compliance
with this Agreement shall be made in accordance with GAAP as in effect on the
date of this Agreement and applied on a basis consistent in all material
respects with the audited Financial Statements delivered to TBCC on or before
the date of this Agreement. The Financial Statements required to be delivered
hereunder, and all financial records, shall be maintained in accordance with
GAAP. If GAAP shall change from the basis used in preparing the audited
Financial Statements delivered to TBCC on or before the date of this Agreement,
the Compliance Certificates required to be delivered pursuant to this Agreement
shall include calculations setting forth the adjustments necessary to
demonstrate how Borrower is in compliance with the Financial Covenants (if any)
based upon GAAP as in effect on the date of this Agreement.
9.3. Other Terms: Headings: Construction. Unless otherwise defined herein,
-----------------------------------
terms used herein that are defined in the Uniform Commercial Code, from time to
time in effect in the State of Illinois, shall have the meanings set forth
therein. Each of the words "hereof," "herein," and "hereunder" refer to this
Agreement as a whole. The term "including", whenever used in this Agreement,
shall mean "including (but not limited to)". An Event of Default shall
"continue" or be "continuing" unless and until such Event specified therefor
under Section 7.1. References to Articles, Sections, Annexes, Schedules, and
Exhibits are internal references to this Agreement, and to its attachments,
unless otherwise specified. The headings and any Table of Contents are for
convenience only and shall not affect the meaning or construction of any
provisions 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 TBCC or Borrower
under any rule of construction or otherwise.
10. GENERAL PROVISIONS
------------------
10.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
-------------
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS.
10.2. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE BORROWER AND TBCC,
--------------------------
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY
BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO
WHICH AN APPEAL THEREFROM MAY BE TAKEN, PROVIDED, HOWEVER, THAT TBCC SHALL HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD
FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF TBCC. THE BORROWER AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT
-15-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
BY TBCC. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON
CONVENIENS.
10.3. SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT
------------------
CORPORATION SYSTEM, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, AS THE
DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE
BORROWER, SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH
PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL
TO THE BORROWER. BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.4. LIMITATION OF LIABILITY. TBCC SHALL HAVE NO LIABILITY TO THE BORROWER
-----------------------
(WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE
BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE
TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH. UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON TBCC THAT THE
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TBCC. THE BORROWER HEREBY WAIVES ALL FUTURE CLAIMS AGAINST
TBCC FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.5. Delays: Partial Exercise of Remedies. No delay or omission of TBCC to
------------------------------------
exercise any right or remedy hereunder shall impair any such right or operate as
a waiver thereof. No single or partial exercise by TBCC of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
10.6. Notices. Except as otherwise provided herein, all notices and
-------
correspondence hereunder shall be in writing and sent by certified or registered
mail, return receipt requested, by overnight delivery service, with all charges
prepaid, or by telecopier followed by a hard copy sent by regular mail, to the
parties at their addresses set forth in the heading to this Agreement. All such
notices and correspondence shall be deemed given (i) if sent by certified or
registered mail, three Business Days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by telecopier transmission, when receipt
of such transmission is acknowledged. Borrower's and TBCC's telecopier numbers
for purpose of notice hereunder are set forth in the Schedule; each party's
number may be changed by written notice to the other party.
10.7. Indemnification; Reimbursement of Expenses of Collection. Borrower
--------------------------------------------------------
hereby indemnifies and agrees, whether or not any of the transactions
contemplated by this Agreement or the other Loan Documents are consummated, to
defend and hold harmless (on an after-tax basis) TBCC, its successors and
assigns and their respective directors, officers, agents, employees, advisors,
shareholders, attorneys and Affiliates (each, an "Indemnified Party") from and
-----------------
against any and all losses, claims, damages, liabilities, deficiencies,
obligations, fines, penalties, actions (whether threatened or existing),
judgments, suits (whether threatened or existing) or expenses (including,
without limitation, reasonable fees and disbursements of counsel, experts,
consultants and other professionals) incurred by any of them (collectively,
"Claims") (except, in the case of each Indemnified Party, to the extent that any
------
Claim is determined in a final and non-appealable judgment by a court of
competent jurisdiction to have directly resulted from such Indemnified Party's
gross negligence or willful misconduct) arising out of or by reason of (i) any
litigation, investigation, claim or proceeding which arises out of or is related
to (A) Borrower, or this Agreement, any other Loan Document or the transactions
contemplated hereby or thereby, (B) any actual or proposed use by Borrower of
the proceeds of the Loans, or (C) TBCC's entering into this Agreement or any
other Loan Document or any other agreements and documents relating hereto,
including, without limitation, amounts paid in settlement, court costs and the
reasonable fees and disbursements of counsel incurred in connection with any
such litigation, investigation, claim or proceeding, (ii) any remedial or other
action taken by Borrower in connection with compliance by Borrower, or any of
its properties, with any federal, state or local environmental laws, rules or
regulations, and (iii) any pending, threatened or actual action, claim,
proceeding or suit by any shareholder or director of Borrower or any actual or
purported violation of Borrower's charter, by-laws or any other agreement or
instrument to which Borrower is a party or by which any of its properties is
bound. In addition and without limiting the generality of the foregoing.
Borrower shall, upon demand, pay to TBCC all reasonable costs and expenses
incurred by TBCC (including the reasonable fees and disbursements of counsel and
other professionals) in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents, and pay to
TBCC all reasonable costs and expenses (including the reasonable fees and
disbursements of counsel and other professionals) paid or incurred by TBCC in
order to enforce or defend any of its rights under or in respect of this
Agreement, any other Loan Document or any other document or instrument now or
hereafter executed and delivered in connection herewith, collect the Obligations
or
-16-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
otherwise administer this Agreement, foreclose or otherwise realize upon the
Collateral or any part thereof, 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 TBCC's security interest in, the Collateral; and otherwise
represent TBCC in any litigation relating to Borrower. Without limiting the
generality of the foregoing, Borrower shall pay TBCC a fee with respect to each
wire transfer in the amount of $15 plus all bank charges and a fee of $15 for
all returned checks plus all bank charges. If either TBCC 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. If and to the extent that the Obligations of
Borrower hereunder are unenforceable for any reason, Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of the Obligations
which is permissible under applicable law. Borrower's obligations under Section
2 4 and this Section shall survive any termination of this Agreement and the
other Loan Documents and the payment in full of the Obligations, and are in
addition to, and not in substitution of, any of the other Obligations.
10.8. Amendments and Waivers. Any provision of this Agreement or any other
----------------------
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writing and signed by Borrower and TBCC and then any such amendment or
waiver shall be effective only to the extent set forth therein. The failure of
TBCC at any time or times to require Borrower to strictly comply with any of the
provisions of this Agreement or any other present or future agreement between
Borrower and TBCC shall not waive or diminish any right of TBCC 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 agreement now
or in the future executed by Borrower and delivered to TBCC shall be deemed to
have been waived by any act or knowledge of TBCC or its agents or employees, but
only by a specific written waiver signed by an authorized officer of TBCC and
delivered to Borrower.
10.9. Counterparts; Telecopied Signatures. This Agreement and any waiver or
-----------------------------------
amendment hereto may be executed in counterparts and by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
10.10. Severability. In case any provision in or obligation under this
------------
Agreement or any other Loan Document shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
10.11. Joint and Several Liability. If Borrower consists of more than one
---------------------------
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
10.12. Maximum Rate. Notwithstanding anything to the contrary contained
------------
elsewhere in this Agreement or in any other Loan Document, the parties hereto
hereby agree that all agreements between them under this Agreement and the other
Loan Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to TBCC for the use, forbearance, or
detention of the money loaned to Borrower and evidenced hereby or thereby or for
the performance or payment of any covenant or obligation contained herein or
therein, exceed the maximum non-usurious interest rate, if any, that at any time
or from time to time may be contracted for, taken, reserved, charged or received
on the Obligations, under the laws of the State of Illinois (or the laws of any
other jurisdiction whose laws may be mandatory applicable notwithstanding other
provisions of this Agreement and the other Loan Documents), or under applicable
federal laws which may presently or hereafter be in effect and which allow a
higher maximum non-usurious interest rate than under the laws of the State of
Illinois (or such other jurisdiction), in any case after taking into account, to
the extent permitted by applicable law, any and all relevant payments or charges
under this Agreement and the other Loan Documents executed in connection
herewith, and any available exemptions, exceptions and exclusions (the "Highest
Lawful Rate"). If due to any circumstance whatsoever, fulfillment of any
provisions of this Agreement or any of the other Loan Documents at the time
performance of such provision shall be due shall exceed the Highest Lawful Rate,
then, automatically, the obligation to be fulfilled shall be modified or reduced
to the extent necessary to limit such interest to the Highest Lawful Rate, and
if from any such circumstance TBCC should ever receive anything of value deemed
interest by applicable law which would exceed the Highest Lawful Rate, such
excessive interest shall be applied to the reduction of the principal amount
then outstanding hereunder or on account of any other then outstanding
Obligations and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid balance then outstanding hereunder and such other
then outstanding Obligations, such excess shall be refunded to Borrower. All
sums paid or agreed to be paid to TBCC for the use, forbearance, or detention of
the Obligations and other indebtedness of Borrower to TBCC shall, to the extent
-17-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
permitted by applicable law, be armortized, prorated, allocated and spread
throughout the full term of such indebtedness, until payment in full thereof, so
that the actual rate of interest on account of all such indebtedness does not
exceed the Highest Lawful Rate throughout the entire term of such indebtedness.
The terms and provisions of this Section shall control every other provision of
this Agreement, the other Loan Documents and all other agreements between the
parties hereto
10.13. Entire Agreement; Successors and Assigns. This Agreement and the other
----------------------------------------
Loan Documents constitute the entire agreement between the parties, supersede
any prior written and verbal agreements between them, and shall bind and benefit
the parties and their respective successors and permitted assigns. There are no
------------
oral understandings, oral representations or oral agreements between the parties
--------------------------------------------------------------------------------
which are not set forth in this Agreement or in other written agreements signed
-------------------------------------------------------------------------------
by the parties in connection herewith.
-------------------------------------
10.14. MUTUAL WAIVER OF JURY TRIAL. TBCC AND BORROWER EACH HEREBY WAIVE THE
---------------------------
RIGHT TO TRAIL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; OR (ii) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER; OR (iii) ANY CONDUCT,
ACTS OR OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR
BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
BORROWER:
TUT SYSTEMS, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------
Title CFO
-----------------------
TBCC:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By__________________________
Title_______________________
▇▇▇▇-▇▇
▇▇▇▇▇▇▇.-▇
-▇▇-
▇▇▇▇
▇▇▇▇▇▇▇▇ TO
LOAN AND SECURITY AGREEMENT
BORROWER: TUT SYSTEMS, INC.
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
DATE: DECEMBER 18, 1998
This Schedule is an integral part of the Loan and Security Agreement between
TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC") and the above borrower (the
"Borrower") of even date.
1. CREDIT LIMIT (Section 1.1):
An amount (the "Credit Limit") not to exceed the
sum of (A) and (B) below:
(A) an amount (the "Formula Revolver Loans") up to
the lesser of: (i) $3,000,00 at any one time
outstanding; or (ii) 85% of the amount of
Borrower's Eligible Receivables (as defined in
Section 9.1(n) above);
PLUS
(B) an amount (the "Non-Formula Revolver Loans") up
to the aggregate amount of $4,500,000.
2. INTEREST. (Section 2.1): Formula Revolver Loans. The interest rate in effect
----------------------
throughout each calendar month with respect to
Formula Revolver Loans during the term of this
Agreement shall be the highest "Base Rate" in
effect during such month, plus 2.00% per annum; and
Non-Formula Revolver Loans. The interest rate in
--------------------------
effect throughout each calendar month with respect
to Non-Formula Revolver Loans during the term of
this Agreement shall be the highest "Base Rate" in
effect during such month, plus 3.50% per annum;
PROVIDED that provided that the interest rate in
effect in each month with respect to Formula
Revolver Loans and Non-Formula Revolver Loans shall
not be less than 8.00% per annum, and the interest
charged for each month with respect to Formula
Revolver Loans and Non-Formula Revolver Loans
shall be a minimum of $10,000 in the aggregate,
regardless of the amount of the Obligations
outstanding.
TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
Interest shall be calculated on the basis of a 360-
day year for the actual number of days elapsed.
"Base Rate" shall mean the higher of (a) the
highest prime, base or equivalent rate of interest
announced from time to time by Citibank, N.A.,
First National Bank of Chicago and Blank of America
National Trust and Savings Association (which may
not be the lowest rate of interest charged by such
bank) and (b) the published annualized rate for 90-
day dealer commercial paper which appears in the
"Money Rates" section of The Wall Street Journal.
-----------------------
3. FEES (Section 2.2):
Loan Fee: $135,000, of which $97,500 shall be
payable concurrently herewith and the remaining
amount, $37,500, shall be due and payable upon the
date that is the first anniversary hereof.
Termination Fee: An amount equal to $10,000
multiplied by each month (or portion thereof) from
the effective date of termination to the Maturity
Date, which Termination Fee shall be payable on the
date of termination.
4. MATURITY DATE (Section 1.6):
JUNE 30, 2000 (the "Maturity Date"), subject to
automatic renewal and early termination as provided
in Section 1.6 above.
5. REPORTING (Section 5.10): Borrower shall provide TBCC with the following
reports:
(a). Monthly Financial Statements. Monthly unaudited
----------------------------
financial statements, as soon as available, and in
any event within 30 days after the end of each
month.
(b). Monthly Receivable Agings. Monthly Receivable
-------------------------
agings, aged by invoice date, within 20 days after
the end of each month.
(c). Monthly Payable Agings. Monthly accounts payable
----------------------
agings, aged by invoice date, and outstanding or
held check registers within 20 days after the end
of each month.
(d). Monthly Compliance Certificates. As soon as
-------------------------------
available, but not later than thirty days after the
end of each month, a Compliance Certificate, with
an attached schedule of calculations demonstrating
compliance or indicating non-compliance with any
Financial Covenants.
(e). Quarterly Financial Statements. Quarterly unaudited
------------------------------
financial statements, as soon as available, and in
any event within 45 days after the end of each
fiscal quarter of Borrower.
(f). Annual Financial Statements. As soon as available,
---------------------------
but not later than 90 days after the end of the
Borrower's fiscal year, (A) Borrower's annual
audited Financial Statements; (B) a comparison in
reasonable detail to the prior year's audited
Financial Statements; (C) the Auditors' opinion
without Qualification, a
-2-
TBCC Schedule to Loan and Security Agreement
--------------------------------------------------------------------------
Management Letter and a statement indicating that
the Auditors have not obtained knowledge of the
existence of any Default or Event of Default during
their audit; (D) a narrative discussion of
Borrower's financial condition and results of
operations and the liquidity and capital resources
for such fiscal year.
6. BORROWER INFORMATION:
(a) Prior Names of Borrower (Section 4.1l): Tut
Systems, Inc., a California corporation;
Tutankhamon Electronics, Inc.
(b) Prior Trade Names of Borrower (Section 4.11): None.
(c) Existing Trade Names of Borrower (Section 4.1l):
None.
(d) Other Places of Business and Locations of
Collateral (Section 4.2): See Representations and
Warranties form from Borrower dated December 8,
1998.
7. FACSIMILE NUMBERS:
Borrower: (▇▇▇) ▇▇▇-▇▇▇▇
TBCC: (▇▇▇) ▇▇▇-▇▇▇▇
8. CLOSING DEADLINE (Section 1.8): Not Applicable
9. ADDITIONAL PROVISIONS:
(a) Warrants. Concurrently herewith, Borrower shall
--------
provide to TBCC and its participant, if designated by
TBCC in writing to the Borrower, five year warrants to
purchase, in the aggregate for both such parties, 55,000
shares of common stock of the Borrower with an initial
exercise price of $14.00 per share together with
registration rights, with such warrant and related
documentation as are acceptable to TBCC in its
discretion.
Borrower: TBCC:
TUT SYSTEMS, INC. TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By:_________________________________
-----------------------------
President or Vice President Title_______________________________
-3-
--------------------------------------------------------------------------------
REVOLVING CREDIT NOTE
$7,500,00 CHICAGO, ILLINOIS DECEMBER 18, 1998
FOR VALUE RECEIVED, TUT SYSTEMS, INC., a DELAWARE corporation having its
chief executive office and principal place of business at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Borrower"), hereby unconditionally and
absolutely promises to pay to the order of TRANSAMERICA BUSINESS CREDIT
CORPORATION, a Delaware corporation ("TBCC"), on the Maturity Date, at TBCC's
office at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at
such other location as TBCC may from time to time designate, in lawful money of
the United States of America and in immediately available funds, the principal
amount equal to $7,500,00 or such greater or lesser amount as represents the
aggregate unpaid principal amount of all Loans made by TBCC to the Borrower
under the revolving credit facility made available pursuant to the Loan and
Security Agreement between TBCC and Borrower dated DECEMBER 18, 1998 (the "Loan
Agreement"). The Borrower further promises to pay interest in like money and
funds at TBCC's office specified above (or at such other location as TBCC may
from time to time designate) on the unpaid principal amount hereof from time to
time outstanding from and including the date hereof until paid in full (both
before and after judgment) at the rates and on the dates set forth in the Loan
Agreement. All capitalized terms used herein which are not defined herein shall
have the meanings ascribed to such terms in the Loan Agreement.
The holder of this Note is authorized to record the date and amount of each
Loan evidenced by this Note, the date and amount of each payment or prepayment
of principal hereof and the interest rate with respect thereto on a schedule
attached hereto, or on a continuation of such schedule attached hereto and made
a part hereof, and any such notation shall be conclusive and binding for all
purposes absent manifest error; provided, however, that the failure of TBCC to
-------- -------
make any such recordation or endorsement shall not affect the obligations of the
Borrower hereunder or under the Loan Agreement.
Whenever any payment to be made hereunder shall be stated to be due on a day
that is not a Business Day, the payment may be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the amount of interest due hereunder.
This Note is entitled to the benefit of all terms and conditions of, and the
security of all security interests, liens, mortgages, deeds of trust and rights
granted pursuant to, the Loan Agreement and the other Loan Documents, and is
subject to optional and mandatory prepayment as provided therein.
Upon the occurrence of any one or more Events of Default, all amounts then
remaining unpaid on this Note may be declared to be or may automatically become
immediately due and payable as provided in the Loan Agreement.
The Borrower acknowledges that the holder of this Note may assign, transfer
or sell all or a portion of its rights and interests to and under this Note to
one or more Persons as provided in the Loan Agreement and that such Persons
shall thereupon become vested with all of the rights and benefits of TBCC in
respect hereof as to all or that portion of this Note which is so assigned,
transferred or sold.
In the event of any conflict between the terms hereof and the terms and
provisions of the Loan Agreement, the terms and provisions of the Loan Agreement
shall control.
The Borrower and all other parties that at any time may be liable hereupon in
any capacity, jointly or severally, waive presentment, demand for payment,
protest and notice of dishonor of this Note and authorize the holder hereof,
without notice, to increase or decrease the rate of interest on any amount owing
under this Note in accordance with the Loan Agreement. The Borrower further
waives promptness, diligence, notice of acceptance and any other notice with
respect to any of the Obligations and any requirement that TBCC exhaust any
rights or take any action against any other Person or any collateral. The
Borrower further hereby waives notice of or proof of reliance by TBCC upon this
Note, and the Obligations shall conclusively be deemed to have been created,
contracted, incurred, renewed, extended, amended or waived in reliance upon this
Note. The Borrower shall make all payments hereunder and under the Loan
Agreement without defense, offset or counterclaim. No failure to exercise
TBCC REVOLVING CREDIT NOTE
---------------------------------------------------------------------------
and no delay in exercising any rights hereunder on the part of the holder hereof
shall operate as a waiver of such rights. This Note may not be changed orally,
but only by an agreement in writing, which is signed by the party or parties
against whom enforcement of any waiver, change, modification or discharge is
sought.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS NOTE AND THE OTHER LOAN
DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS NOTE,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY
THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) AND DECISIONS
OF THE STATE OF ILLINOIS.
ALL DISPUTES ARISING UNDER OR IN CONNECTION WITH THIS NOTE AND ANY OTHER LOAN
DOCUMENT BETWEEN THE BORROWER AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED
IN CHICAGO, ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN;
PROVIDED, HOWEVER, THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN ANY LOCATION
REASONABLY SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE
BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR
CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY TBCC. THE BORROWER WAIVES ANY
OBJECTION THAT THE BORROWER MAY HAVE THE LOCATION OF THE COURT IN WHICH TBCC HAS
COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM, ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ AS THE DESIGNEE AND AGENT OF THE BORROWER TO
RECEIVE, FOR AND ON BEHALF OF THE BORROWER SERVICE OF PROCESS IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN DOCUMENT. IT IS
UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL
BE PROMPTLY FORWARDED BY MAIL TO THE BORROWER, BUT THE FAILURE OF THE BORROWER
TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF TBCC TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
THE BORROWER AND, BY ITS ACCEPTANCE HEREOF, TBCC 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: (I) THIS NOTE; OR (II) ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER; OR (III) ANY CONDUCT, ACTS OR
OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR BORROWER; IN EACH
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
TUT SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------
Title: CEO
-----------------
-2-
TBCC
STREAMLINED FACILITY AGREEMENT
December 18, 1998
Tut Systems, Inc,
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
This Streamlined Facility Agreement (this "Agreement") is entered into
between Transamerica Business Credit Corporation ("TBCC"), and Tut Systems, Inc.
("Borrower"), in connection with the Loan and Security Agreement between TBCC
and Borrower dated December 18, 1998 (the "Loan Agreement"). (This Agreement,
the Loan Agreement, and all other written documents and agreements between TBCC
and Borrower are referred to herein collectively as the "Loan Documents".
Capitalized terms used but not defined in this Agreement, shall have the
meanings set forth in the Loan Agreement.)
This will confirm our agreement that the following provisions (the
"Streamlined Provisions") shall apply, effective on the date hereof, until
terminated as provided below:
1. Borrower will provide TBCC with a monthly Borrowing Base Certificate,
in such form as TBCC shall from time to time specify, within* days after the
end of each month, and TBCC shall not require more frequent schedules of
Receivables or other Collateral reporting with respect to the Receivables,
except for the information required in connection with an advance request. In
the event, as of the end of any month, the total of all Loans and all other
Obligations exceeds the Credit Limit, Borrower shall immediately pay the amount
of the excess to TBCC.
* 20
2. Delivery of the proceeds of Receivables within one Business Day after
receipt, as called for by Section 1.4 of the Loan Agreement, will not be
required.
3. TBCC will also not require any Depository Account Agreement or Blocked
Account Agreement, as called for by Section 1.8 of the Loan Agreement. In
addition, Borrower will not he required to provide TBCC with copies of invoices
to customers or shipping and delivery receipts, as called for by Section 3.3(a)
of the Loan Agreement, or to report customer credits, returns and recoveries of
merchandise as called for by Section 3.3(b) of the Loan Agreement.
The Streamlined Provisions shall immediately terminate if any Default or
Event of Default occurs and is continuing. Upon any termination of the
Streamlined Provisions, without limiting TBCC's other rights and remedies,
Borrower shall, then and thereafter, provide TBCC with such other or additional
reporting of Receivables as TBCC shall request under Section
3.3(a) of the Loan Agreement, comply in all respects with Section 3.3(b), and
deliver all proceeds of Receivable to TBCC, within one Business Day after
receipt, as called for by Section 1.4 of the Loan Agreement. Additionally,
Borrower and its bank shall execute and deliver a Blocked Account Agreement or
Depository Account Agreement (as TBCC shall designate), in form and substance
satisfactory to TBCC.
Please confirm your agreement to the foregoing by signing the enclosed copy
of this Agreement and returning it to us.
Sincerely yours,
Transamerica Business Credit Corporation
By:_______________________
Title:____________________
Acknowledged and Agreed.
Tut Systems, Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------
Title CFO
---------------------------
-3
-2-
NOTICE OF SECURITY INTEREST
DECEMBER 18, 1998
Certified Mail, Return Receipt Requested
CIBC Oppenheimber
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Tut Systems Inc.
----------------
Gentlemen:
Notice is hereby given that your above-named customer has granted a
security interest in all of its present and future deposit accounts maintained
with your institution, general and special, and of every other kind, to
Transamerica Business Credit Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Please contact the undersigned at ▇▇▇-▇▇▇-▇▇▇▇ if you have any questions
about this matter.
Sincerely yours,
Transamerica Business Credit Corporation
By ______________________
Title ___________________
Acknowledged and Agreed:
Tut Systems, Inc.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------
Title CFO
----------------------------
NOTICE OF SECURITY INTEREST
DECEMBER 18, 1998
Certified Mail, Return Receipt Requested
Monarch Funds
P. O. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Re: Tut Systems, Inc.
-----------------
Gentlemen:
Notice is hereby given that your above-named customer has granted a
security interest in all of its present and future deposit accounts maintained
with your institution, general and special, and of every other kind, to
Transamerica Business Credit Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Please contact the undersigned at ▇▇▇-▇▇▇-▇▇▇▇ if you have any questions
about this matter.
Sincerely yours,
Transamerica Business Credit Corporation
By _____________________________
Title __________________________
Acknowledged and Agreed:
Tut Systems, Inc.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------
Title CFO
--------------------------
NOTICE OF SECURITY INTEREST
DECEMBER 18, 1998
Certified Mail, Return Receipt Requested
Bank of America
P. O. ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Re: Tut Systems, Inc.
-----------------
Gentlemen:
Notice is hereby given that your above-named customer has granted a
security interest in all of its present and future deposit accounts maintained
with your institution, general and special, and of every other kind, to
Transamerica Business Credit Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Please contact the undersigned at ▇▇▇-▇▇▇-▇▇▇▇ if you have any questions
about this matter.
Sincerely yours,
Transamerica Business Credit Corporation
By __________________________
Title _______________________
Acknowledged and Agreed:
Tut Systems, Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------
Title CFO
---------------------------
NOTICE OF SECURITY INTEREST
DECEMBER 18, 1998
Certified Mail, Return Receipt Requested
Imperial Bank
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Re: Tut Systems, Inc.
-----------------
Gentlemen:
Notice is hereby given that your above-named customer has granted a
security interest in all of its present and future deposit accounts maintained
with your institution, general and special, and of every other kind, to
Transamerica Business Credit Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Please contact the undersigned at ▇▇▇-▇▇▇-▇▇▇▇ if you have any questions
about this matter.
Sincerely yours,
Transamerica Business Credit Corporation
By __________________________
Title _______________________
Acknowledged and Agreed:
Tut Systems, Inc.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------
Title CFO
----------------------------
PATENT AND TRADEMARK SECURITY AGREEMENT
This PATENT AND TRADEMARK SECURITY AGREEMENT ("Agreement"), dated as of December
18, 1998, is entered into between TUT SYSTEMS, INC., a Delaware corporation
("Grantor"), which has a mailing address at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware
corporation, ("TBCC") having its principal office at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and having an office at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
RECITALS
A. Grantor and TBCC are contemporaneously herewith, entering into that
certain Loan and Security Agreement ("Loan Agreement") and other instruments,
documents and agreements contemplated thereby or related thereto (collectively,
together with the Loan Agreement, the "Loan Documents"); and
B. Grantor is the owner of certain intellectual property, identified
below, in which Grantor is granting a security interest to TBCC.
NOW THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth and for other
good and valuable consideration, the parties hereto mutually agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. The following terms, as used in this Agreement, have the
following meanings:
"Code" means the Illinois Uniform Commercial Code, as amended and
----
supplemented from time to time, and any successor statue.
"Collateral" means all of the following, whether now owned or
----------
hereafter acquired:
(i) Each of the trademarks and rights and interest which are capable
of being protected as trademarks (including trademarks, service marks,
designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles, and other source
or business identifiers, and applications pertaining thereto), which are
presently, or in the future may be, owned, created, acquired, or used
(whether pursuant to a license or otherwise) by Grantor, in whole or in
part, and all trademark rights with respect thereto throughout the world,
including all proceeds thereof (including license royalties and proceeds of
infringement suits), and rights to renew and extend such trademarks and
trademark rights;
(ii) Each of the patents and patent applications which are presently,
or in the future may be, owned, issued, acquired, or used (whether pursuant
to a license or otherwise) by Grantor, in whole or in part, and all patent
rights with respect thereto throughout the world, including all proceeds
thereof (including license royalties and proceeds of infringement suits),
foreign filing rights, and rights to extend such patents and patent
rights*;
-1-
*, OTHER THAN FOR PATENT APPLICATIONS FILED WITH UNITED STATES PATENT
AND TRADEMARK OFFICE HAVING THE FOLLOWING NUMBERS: 024883 AND 899220
(iii) All of Grantor's right to the trademarks and trademark
registrations listed on Exhibit A attached hereto, as the same may be
---------
updated hereafter from time to time;
(iv) All of Grantor's right, title, and interest, in and to the
patents and patent applications listed on Exhibit B attached hereto, as
---------
the same may be updated hereafter from time to time;
(v) All of Grantor's right, title and interest to register
trademark claims under any state or federal trademark law or regulation of
any foreign country and to apply for, renew, and extend the trademark
registrations and trademark rights, the right (without obligation) to ▇▇▇
or bring opposition or cancellation proceedings in the name of Grantor or
in the name of TBCC for past, present, and future infringements of the
trademarks, registrations, or trademark rights and all rights (but not
obligations) corresponding thereto in the United States and any foreign
country;
(vi) All of Grantor's right, title, and interest in all patentable
inventions, and to file applications for patent under federal patent law or
regulation of any foreign country, and to request reexamination and/or
reissue of the patents, the right (without obligation) to ▇▇▇ or bring
interference proceedings in the name of Grantor or in the name of TBCC for
past, present, and future infringements of the patents, and all rights (but
not obligations) corresponding thereto in the United States and any foreign
country;
(vii) the entire goodwill of or associated with the businesses now or
hereafter conducted by Grantor connected with and symbolized by any of the
aforementioned properties and assets;
(viii) All general intangibles relating to the foregoing and all other
intangible intellectual or other similar property of the Grantor of any
kind or nature, associated with or arising out of any of the aforementioned
properties and assets and not otherwise described above; and
(ix) All products and proceeds of any and all of the foregoing
(including, without limitation, license royalties and proceeds of
infringement suits) and, to the extent not otherwise included, all payments
under insurance, or any indemnity, warranty, or guaranty payable by reason
of loss or damage to or otherwise with respect to the Collateral,
"Obligations" means all obligations, liabilities, and indebtedness of
-----------
Grantor to TBCC, whether direct, indirect, liquidated, or contingent, and
whether arising under this Agreement, the Loan Agreement, any other of the Loan
Documents, or otherwise, including all reasonable costs and expenses as set
forth in the Loan Agreement.
1.2 CONSTRUCTION. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular including the plural, and the term "including" is not limiting. The
words "hereof," "herein," "hereby," "hereunder," and other similar terms refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Any initially capitalized terms used but not defined herein shall
have the meaning set forth in the Loan Agreement. Any reference herein to any of
the Loan Documents includes any and all alterations, amendments, extensions,
modifications, renewals, or supplements thereto or thereof, as applicable.
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against TBCC or Grantor, whether under any role of
construction or
-2-
otherwise. On the contrary, this Agreement has been reviewed by Grantor, TBCC,
and their respective counsel, and shall be construed and interpreted according
to the ordinary meaning of the words used so as to fairly accomplish the
purposes and intentions of TBCC and Grantor. Headings have been set forth herein
for convenience only, and shall not be used in the construction of this
Agreement.
2. GRANT OF SECURITY INTEREST.
To secure the complete and timely payment and performance of all
Obligations, and without limiting any other security interest Grantor has
granted to TBCC, Grantor hereby grants, assigns, and conveys to TBCC a security
interest in Grantor's entire right, title, and interest in and to the
Collateral.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
Grantor hereby represents, warrants, and covenants that:
3.1 TRADEMARKS; PATENT. A true and complete schedule setting forth all
federal and state trademark registrations owned or controlled by Grantor or
licensed to Grantor, together with a summary description and full information in
respect of the filing or issuance thereof and expiration dates is set forth on
Exhibit A; and a true and complete schedule setting forth all patent and
---------
patent applications owned or controlled by Grantor or licensed to Grantor,
together with a summary description and full information in respect of the
filing or issuance thereof and expiration dates is set forth on Exhibit B.
---------
3.2 VALIDITY; ENFORCEABILILY. Each of the patents and trademarks is valid
and enforceable, and Grantor is not presently aware of any past, present, or
prospective claim by any third party that any of the patents or trademarks are
invalid or unenforceable, or that the use of any patents or trademarks violates
the rights of any third person, or of any basis for any such claims.
3.3 TITLE. Grantor is the sole and exclusive owner of the entire and
unencumbered right, title, and interest in and to each of the patents, patent
applications, trademarks, and trademark registrations, free and clear of any
liens, charges, and encumbrances, including pledges, assignments, licenses, shop
rights, and covenants by Grantor not to ▇▇▇ third persons.
3.4 NOTICE. Grantor has used and will continue to use proper statutory
notice in connection with its use of each of the patents and trademarks.
3.5 QUALITY. Grantor has used and will continue to use consistent
standards of high quality (which may be consistent with Grantor's past
practices) in the manufacture, sale, and delivery of products and services sold
or delivered under or in connection with the trademarks, including, to the
extent applicable, in the operation and maintenance of its merchandising
operations, and will continue to maintain the validity of the trademarks.
3.6 PERFECTION OF SECURITY INTEREST. Except for the filing of appropriate
financing statements (all of which filings have been made) and filings with the
United States Patent and Trademark Office necessary to perfect the security
interests created hereunder, no authorization, approval, or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required either for the grant by Grantor of the security interest hereunder or
for the execution, delivery, or performance of this Agreement by Grantor or for
the perfection of or the exercise by TBCC of its rights hereunder to the
Collateral in the United States.
4. AFTER-ACQUIRED PATENT OR TRADEMARK RIGHTS.
-3-
If Grantor shall obtain rights to any new trademarks, any new patentable
inventions or become entitled to the benefit of any patent application or patent
for any reissue, division, or continuation, of any patent, the provisions of
this Agreement shall automatically apply thereto. Grantor shall give prompt
notice in writing to TBCC with respect to any such new trademarks or parents, or
renewal or extension of any trademark registration. Grantor shall bear any
expenses incurred in connection with future patent applications or trademark
registrations. Without limiting Grantor's obligation under this Section 4,
Grantor authorizes TBCC to modify this Agreement by amending Exhibits A or B
---------------
to include any such new patent or trademark rights. Notwithstanding the
foregoing, no failure to so modify this Agreement or amend Exhibits A or B shall
---------------
in any way affect, invalidate or detract from TBCC's continuing security
interest in all Collateral, whether or not listed on Exhibit A or B.
--------------
5. LITIGATION AND PROCEEDINGS.
Grantor shall commence and diligently prosecute in its own name, as the
real party in interest, for its own benefit, and its own expense, such suits,
administrative proceedings, or other action for infringement or other damages as
are in its reasonable business judgment necessary to protect the Collateral.
Grantor shall provide to TBCC any information with respect thereto requested by
TBCC. TBCC shall provide at Grantor's expense all necessary cooperation in
connection with any such suits, proceedings, or action, including, without
limitation, joining as a necessary party. Following Grantor's becoming aware
thereof, Grantor shall notify TBCC of the institution of, or any adverse
determination in, any proceeding in the United States Patent and Trademark
Office, or any United States, state, or foreign court regarding Grantor's claim
of ownership in any of the patents or trademarks, its right to apply for the
same, or its right to keep and maintain such patent or trademark rights.
6. POWER OF ATTORNEY.
Grantor, hereby appoints TBCC as Grantor's true and lawful attorney, with
full power of substitution, to do any or all of the following, in the name,
place and stead of Grantor*: (a) file this Agreement (or an abstract hereof) or
any other document describing TBCC's interest in the Collateral with the United
States Patent and Trademark Office; (b) execute any modification of this
Agreement pursuant to Section 4 of this Agreement; (c) take any action and
execute any instrument which TBCC may deem necessary or advisable to accomplish
the purposes of this Agreement**; and (d) following an Event of Default*** (as
defined in the Loan Agreement), (i) endorse Grantor's name on all applications,
documents, papers and instruments necessary for TBCC to use or maintain the
Collateral; (ii) ask, demand, collect, ▇▇▇ for, recover, impound, receive, and
give acquittance and receipts for money due or to become due under or in respect
of any of the Collateral; (iii) file any claims or take any action or institute
any proceedings that TBCC may deem necessary or desirable for the collection of
any of the Collateral or otherwise enforce TBCC's rights with respect to any of
the Collateral, and (iv) assign, pledge, convey, or otherwise transfer title in
or dispose of the Collateral to any person.
* PROVIDED THAT WITH RESPECT TO THE ACTIONS SET FORTH IN (A), (B) AND (C)
BELOW SUCH POWER OF ATTORNEY SHALL BE EFFECTIVE ONLY AFTER TBCC HAS GIVEN
GRANTOR THREE BUSINESS DAYS NOTICE OF ITS INTENT TO DO SO
** REGARDING CLAUSES (A) AND (B) ABOVE
*** AND DURING THE CONTINUANCE THEREOF
7. RIGHT TO INSPECT.
-4-
Grantor grants to TBCC and its employees and agents the right to visit
Grantor's plants and facilities which manufacture, inspect, or store products
sold under any of the patents or trademarks, and to inspect the products and
quality control records relating thereto at reasonable times during regular
business hours.
8. SPECIFIC REMEDIES.
Upon the occurrence* of any Event of Default (as defined in the Loan
Agreement), TBCC shall have, in addition to, other rights given by law or in
this Agreement, the Loan Agreement, or in any other Loan Document, all of the
rights and remedies with respect to the Collateral of a secured party under the
Code, including the following:
* AND DURING THE CONTINUANCE
8.1 NOTIFICATION. TBCC may notify licensees to make royalty payments on
license agreements directly to TBCC;
8.2 SALE. TBCC may sell or assign the Collateral and associated goodwill
at public or private sale for such amounts, and at such time or times as TBCC
deems advisable. Any requirement of reasonable notice of any disposition of the
Collateral shall be satisfied if such notice is sent to Grantor five (5) days
prior to such disposition. Grantor shall be credited with the net proceeds of
such sale only when they are actually received by TBCC, and Grantor shall
continue to be liable for any deficiency remaining after the Collateral is sold
or collected. If the sale is to be a public sale, TBCC shall also give notice of
the time and place by publishing a notice one time at least five (5) days before
the date of the sale in a newspaper of general circulation in the county in
which the sale is to be held. To the maximum extent permitted by applicable law,
TBCC may be the purchaser of any or all of the Collateral and associated
goodwill at any public sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any public sale, to use and apply all or any part of the
Obligations as a credit on account of the purchase price of any collateral
payable by TBCC at such sale.
9. GENERAL PROVISIONS.
9.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective
when executed by Grantor and TBCC.
9.2 NOTICES. Except to the extent otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing and shall be governed by the notice provisions of the
Loan Agreement.
9.3 NO WAIVER. No course of dealing between Grantor and TBCC, nor any
failure to exercise nor any delay in exercising, on the part of TBCC, any right,
power, or privilege under this Agreement or under the Loan Agreement or any
other agreement, shall operate as a waiver. No single or partial exercise of any
right, power, or privilege under this Agreement or under the Loan Agreement or
any other agreement by TBCC shall preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege by TBCC.
9.4 RIGHTS ARE CUMULATIVE. All of TBCC's rights and remedies with respect
to the Collateral whether established by this Agreement, the Loan Agreement, or
any other documents or agreements, or by law shall be cumulative and may be
exercised concurrently or in any order.
9.5 SUCCESSORS. The benefits and burdens of this Agreement shall inure to
the benefit of and be binding upon the respective successors and permitted
assigns of the parties; provided that
-5-
Grantor may not transfer any of the Collateral or any rights hereunder, without
the prior written consent of TBCC, except as specifically permitted *.
* BY THIS AGREEMENT
9.6 SEVERABILITY. The provisions of this Agreement are severable. If any
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
9.7 ENTIRE AGREEMENT. This Agreement is subject to modification only by a
writing signed by the parties, except as provided in Section 4 of this
Agreement. To the extent that any provision of this Agreement conflicts with any
provision of the Loan Agreement, the provision giving TBCC greater rights or
remedies shall govern, it being understood that the purpose of this Agreement is
to add to, and not detract from, the rights granted to TBCC under the Loan
Agreement. This Agreement, the Loan Agreement, and the documents relating
thereto comprise the entire agreement of the parties with respect to the matters
addressed in this Agreement.
9.8 FEES AND EXPENSES. Grantor shall pay to TBCC on demand all costs and
expenses that TBCC pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and termination of this
Agreement, including: (a) reasonable attorneys' and paralegals' fees and
disbursements of counsel to TBCC; (b) costs and expenses (including reasonable
attorneys' and paralegals' fees and disbursements) for any amendment,
supplement, waiver, consent, or subsequent closing in connection with this
Agreement and the transactions contemplated hereby; (c) costs and expenses of
lien and title searches; (d) taxes, fees, and other charges for filing this
Agreement at the United States Patent and Trademark Office, or for filing
financing statements, and continuations, and other actions to perfect, protect,
and continue the security interest created hereunder; (e) sums paid or incurred
to pay any amount or take any action required of Grantor under this Agreement
that Grantor fails to pay or take; (f) costs and expenses of preserving and
protecting the Collateral; and (g) costs and expenses (including reasonable
attorneys' and paralegals' fees and disbursements) paid or incurred to enforce
the security interest created hereunder, sell or otherwise realize upon the
Collateral, and otherwise enforce the provisions of this Agreement, or to defend
any claims made or threatened against the TBCC arising out of the transactions
contemplated hereby (including preparations for the consultations concerning any
such matters). The foregoing shall not be construed to limit any other
provisions of this Agreement or the Loan Documents regarding costs and expenses
to be paid by Grantor. The parties agree that reasonable attorneys' and
paralegals' fees and costs incurred in enforcing any judgment are recoverable as
a separate item in addition to fees and costs incurred in obtaining the judgment
and that the recovery of such attorneys' and paralegals' fees and costs is
intended to survive any judgment, and is not to be deemed merged into any
judgment.
9.9 INDEMNITY. Grantor shall protect, defend, indemnify, and hold
harmless TBCC and TBCC's assigns from all liabilities, losses, and costs
(including without limitation reasonable attorneys' fees) incurred or imposed on
TBCC relating to the matters in this Agreement.
9.10 FURTHER ASSURANCES. At TBCC's request, Grantor shall execute and
deliver to TBCC any further instruments or documentation, and perform any acts,
that may be reasonably necessary or appropriate to implement this Agreement, the
Loan Agreement or any other agreement, and the documents relating thereto,
including without limitation any instrument or documentation reasonably
necessary or appropriate to create, maintain, perfect, or effectuate TBCC's
security interests in the Collateral.
-6-
9.11 RELEASE. At such time as Grantor shall completely satisfy all of
the Obligations and the Loan Agreement shall be terminated, TBCC shall execute
and deliver to Grantor all assignments and other instruments as may be
reasonably necessary or proper to terminate TBCC's security interest in the
Collateral, subject to any disposition of the Collateral which may have been
made by TBCC pursuant to this Agreement. For the purpose of this Agreement, the
Obligations shall be deemed to continue if Grantor enters into any bankruptcy or
similar proceeding at a time when any amount paid to TBCC could be ordered to be
repaid as a preference or pursuant to a similar theory, and shall continue until
it is finally determined that no such repayment can be ordered.
9.12 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS. ALL
DISPUTES BETWEEN THE GRANTOR AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN;
PROVIDED, HOWEVER, THAT TBCC SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TO PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN ANY LOCAT1ON
REASONABLY SELECTED BY TBCC IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC. THE
GRANTOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR
CROSS-CLAIM IN ANY PROCEEDING BROUGHT BY TBCC. THE GRANTOR WAIVES ANY OBJECTION
THAT 1T MAY HAVE TO THE LOCATION OF THE COURT IN WHICH TBCC HAS COMMENCED A
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON FORUM NON CONVENIENS.
9.13 WAIVER OF RIGHT TO JURY TRIAL. TBCC AND GRANTOR 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: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN TBCC AND GRANTOR; OR (III) ANY CONDUCT,
ACTS OR OMISSIONS OF TBCC OR GRANTOR OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR
GRANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
TRANSAMERICA BUSINESS TUT SYSTEMS, INC.
CREDIT CORPORATION
By________________________ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------
Title_____________________ Title CEO
-------------------------
-7-
EXHIBIT "A"
U.S. TRADEMARKS
REGISTERED
▇▇▇▇ REG. NO. REG. DATE
---- -------- ---------
Fast Copper Technology 2,118,251 Dec. 2, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ 1,889,180 Apr. 11, 19
TUT Systems 1,916,130 Sep. 5, 1995
Tutankhamon 1,856,196 Sep. 27, 1994
EXHIBIT "A"
U.S. TRADEMARKS
PENDING
▇▇▇▇ SERIAL NO. FILING DATE
---- ---------- -----------
Expresso 282,693 4/25/97
Home Run 165,243 9/13/96
Immaculate Connection 039,734 3/19/90
Magik Net 9/10/90
SLC 005,833 10/13/95
EXHIBIT "B"
U.S. PATENTS
REGISTERED
TITLE
----- REG. DATE REG. NO.
----------- ---------
Local Area Network Amplifier for Twisted Mar. 2, 1993 5,191,300
Pair Lines
Network Monitor and Test Apparatus Nov. 9, 1993 5,260,664
EMI Suppression Coding Feb. 1, 1994 5,238,807
Network Monitor and Test Apparatus Sep. 13, 1994 5,347,225
Network Monitor and Test Apparatus Nov. 15, 1994 5,365,515
Flat Cable to Flat Parallel Wire Cable Jan. 3, 1995 5,379,005
EMI Suppression Coding Jun. 6, 1995 5,422,919
Enhanced Collision Detection for Ethernet Sep. 12, 1995 5,450,594
Network
Flat Cable to Flat Parallel Wire Cable Nov. 14, 1995 5,467,061
Common Mode Current Cancellation in Dec. 24, 1996 5,587,692
Twisted Pairs
Time Dependent Encoding System Dec. 9, 1997 5,696,790
Circuit For Preventing Base Line Wander Sep. 22, 1998 5,812,597
Of Digital Signals in a Network Receiver
EXHIBIT "B"
U.S. PATENTS
REGISTERED
TITLE REG. DATE REG. NO.
----- --------- --------
Local Area Network Amplifier for Twisted Mar. 2, 1993 5,191,300
Pair Lines
Network Monitor and Test Apparatus Nov. 9, 1993 5,260,664
EMI Suppression Coding Feb. 1, 1994 5,238,807
Network Monitor and Test Apparatus Sep. 13, 1994 5,347,225
Network Monitor and Test Apparatus Nov. 15, 1994 5,365,515
Flat Cable to Flat Parallel Wire Cable Jan. 3, 1995 5,379,005
EMI Suppression Coding Jun. 6, 1995 5,422,919
Enhanced Collision Detection for Ethernet
Network Sep. 12, 1995 5,450,594
Flat Cable to Flat Parallel Wire Cable Nov. 14, 1995 5,467,061
Common Mode Current Cancellation in
Twisted Pairs Dec. 24, 1996 5,587,692
Time Dependent Encoding System Dec. 9, 1997 5,696,790
Circuit For Preventing Base Line Wander
Of Digital Signals in a Network Receiver Sep. 22, 1998 5,812,597
EXHIBIT "B"
U.S. PATENTS
PENDING
Title DOCKET FILE NO. SERIAL NO.
----- --------------- ----------
Apparatus and Method for Selecting Different 85710.P024 08/845,560
Communication Speeds on a Data Signal Line
Method and Apparatus for Encoding a Bit Sequence 85710.P025 08/925,205
For Transmission Over Pots Wiring
Encoding/Detection Method for Digital Data 85710.P026 08/899,220
Method and Apparatus for Detecting Collisions on a 85710.P027 08/925,043
Network
Encoding/Detection Method for Digital Data 09/024,883
Transmitter with a Signal Having Multiple Levels
Method and Apparatus for Dynamically Varying
The Noise Sensitivity of a Receiver 85710.P030
Method and Apparatus for Installing a Software
Upgrade Within a Memory Resource Associated
With a Computer System 85710.P031
EXHIBIT "B"
U.S. PATENTS
PENDING
Title DOCKET FILE NO. SERIAL NO.
----- --------------- ----------
Method and Apparatus for Transmitting and
Receiving a Symbol Over Pots Wiring Using a
Multi-Cycle Waveform 85710.P032
Method and Apparatus for Detecting Collisions
On a Network Using Multi-Cycle Waveform Pulses 85710.P033
EXHIBIT "B"
U.S. PATENTS
PENDING
Title DOCKET FILE NO. SERIAL NO.
----- -------------- ----------
Method and Apparatus for the Secure Switching
Of a Packet within a Communications Network 85710.P034
Method and Apparatus for Automatically Reducing
Cross-Talk Between Wires Coupled to a Common
Network Device 85710.P035
Method and Apparatus for Automatically Determining
A Peak Voltage Level for a Data Signal Propagated
on a Carrier Medium 85710.P036
Method and Apparatus for Detecting a Data Signal
on A Carrier Medium 85710.P037
Method and Apparatus for Detecting Reception of
First And Second Portions of a Frame Utilizing
First and Second Levels of Receiver Sensitivity 85710.P038
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
STOCK SUBSCRIPTION WARRANT
TO PURCHASE COMMON STOCK OF
TUT SYSTEMS, INC. (THE "COMPANY")
DATE OF INITIAL ISSUANCE: December 18, 1998
THIS CERTIFIES THAT for value received, TBCC FUNDING TRUST II, A DELAWARE
BUSINESS TRUST OR its registered assigns (hereinafter called the "Holder") is
entitled to purchase from the Company, at any time during the Term of this
Warrant, Fifty-Five Thousand (55,000) shares of common stock, $.001 par value,
of the Company (the "Common Stock"), at the Warrant Price, payable as provided
herein. The exercise of this Warrant shall be subject to the provisions,
limitations and restrictions herein contained, and may be exercised in whole or
in part.
SECTION 1. DEFINITIONS.
-----------
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
COMMON STOCK - shall mean and include the Company's authorized Common
------------
Stock, $.001 par value, as constituted at the date hereof.
EXCHANGE ACT - shall mean the Securities Exchange Act of 1934, as amended
------------
from time to time.
SECURITIES ACT - the Securities Act of 1933, as amended.
--------------
TERM OF THIS WARRANT - shall mean the period beginning on the date of
--------------------
initial issuance hereof and ending on December 18, 2003.
WARRANT PRICE - $14.00 per share, subject to adjustment in accordance with
-------------
Section 5 hereof.
WARRANTS - this Warrant and any other Warrant or Warrants are issued
--------
in connection with a Loan and Security Agreement dated December 18, 1998 by and
between the Company and Transamerica Business Credit Corporation (the "Loan
Agreement") to the original holder of this Warrant, or any transferees from such
original holder or this Holder.
WARRANT SHARES - shares of Common Stock purchased or purchasable by the
--------------
Holder of this Warrant upon the exercise hereof.
SECTION 2. EXERCISE OF WARRANT.
-------------------
2.1. PROCEDURE FOR EXERCISE OF WARRANT. To exercise this Warrant in whole
---------------------------------
or in part (but not as any fractional share of Common Stock), the Holder shall
deliver to the Company at its office referred to in Section 13 hereof at any
time and from time to time during the Term of this Warrant: (i) the Notice of
Exercise in the form attached hereto, (ii) cash, certified or official bank
check payable to the order of the Company, wire transfer of funds to the
Company's account, or evidence of any indebtedness
of the Company to the Holder (or any combination of any of the foregoing) in the
amount of the Warrant Price for each share being purchased, and (iii) this
Warrant. Notwithstanding any provisions herein to the contrary, if the Current
Market Price (as defined in Section 5) is greater than the Warrant Price (at the
date of calculation, as set forth below), in lieu of exercising this Warrant as
hereinabove permitted, the Holder may elect to receive shares of Common Stock
equal to the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the office of the Company
referred to in Section 13 hereof, together with the Notice of Exercise, in which
event the Company shall issue to the Holder that number of shares of Common
Stock computed using the following formula:
CS = WCS x (CMP-WP)
-------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the Holder
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised (at the date of such
calculation)
CMP equals the Current Market Price (at the date of such calculation)
WP equals the Warrant Price (as adjusted to the date of such calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) days, after the rights represented
by this Warrant shall have been so exercised; and, unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
2.2 TRANSFER RESTRICTION LEGEND. Each certificate for Warrant Shares shall
---------------------------
bear the following legend (and any additional legend required by (i) any
applicable state securities laws and (ii) any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed) on the face
thereof unless at the time of exercise such Warrant Shares shall be registered
under the Securities Act:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold or
transferred in The absence of such registration or an exemption
therefrom under said Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. COVENANTS AS TO COMMON STOCK. The Company covenants and agrees that
----------------------------
all shares of Common Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof. The Company further covenants and agrees that it will pay
when
-2-
due and payable any and all federal and state taxes which may be payable in
respect of the issue of this Warrant or any Common Stock or certificates
therefor issuable upon the exercise of this Warrant. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved, free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
The Company further covenants and agrees that if any shares of capital stock to
be reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Common Stock issuable upon the exercise
of this Warrant is listed on any national securities exchange, the Company will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon exercise of this Warrant.
SECTION 4. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
------------------------------
Price as provided in Section 5, the Holder shall thereafter be entitled to
purchase, at the Warrant Price resulting from such adjustment, the number of
shares (calculated to the nearest tenth of a share) obtained by multiplying the
Warrant Price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment.
SECTION 5. ADJUSTMENT OF WARRANT PRICE. The Warrant Price shall be subject to
---------------------------
adjustment from time to time as follows:
(i) [Reserved]
(ii) [Reserved]
(iii) If at any time during the Term of this Warrant, the number of shares of
Common Stock outstanding is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then,
following the record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up, the Warrant
Price shall be appropriately decreased so that the number of shares of Common
Stock issuable upon the exercise hereof shall be increased in proportion to such
increase in outstanding shares.
(iv) If, any time during the Term of this Warrant, the number of shares of
Common Stock outstanding is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date for such combination, the
Warrant Price shall appropriately increase so that the number of shares of
Common Stock issuable upon the exercise hereof shall be decreased in proportion
to such decrease in outstanding shares.
(v) In case, at any time during the Term of this Warrant, the Company shall
declare a cash dividend upon its Common Stock payable otherwise than out of
earnings or earned surplus or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the Company or other
persons, assets (excluding cash dividends and distributions) or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the Company convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record date fixed for
the determination of the holders of Common Stock entitled to receive such
dividend or distribution, the Warrant Price in effect thereafter shall be
determined by multiplying the Warrant Price in effect immediately prior to such
record date by a fraction of which the numerator shall be an amount equal to the
difference of (x) the Current Market Price of one share of Common Stock minus
(y) the fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the stock, securities,
evidences of indebtedness, assets, options or rights so distributed in respect
of one share of Common Stock and of which the denominator shall be such Current
Market Price.
-3-
(vi) All calculations under this Section 5 shall be made to the nearest cent
or to the nearest one-tenth (1/10) of a share, as the case may be.
(vii) For the purpose of any computation pursuant to this Section 5, the
Current Market Price at any date of one share of Common Stock shall be deemed to
be the average of the daily closing prices for the 15 consecutive business days
ending on the last business day before the day in question (as adjusted for any
stock dividend, split, combination or reclassification that took effect during
such 15 business day period). The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or as reported by Nasdaq (or if
the Common Stock is not at the time listed or admitted for trading on any such
exchange or if prices of the Common Stock are not reported by Nasdaq then such
price shall be equal to the average of the last reported bid and asked prices on
such day as reported by The National Quotation Bureau Incorporated or any
similar reputable quotation and reporting service, if such quotation is not
reported by The National Quotation Bureau Incorporated); provided, however, that
if the Common Stock is not traded in such manner that the quotations referred to
in this clause (vii) are available for the period required hereunder, the
Current Market Price shall be determined in good faith by the Board of Directors
of the Company or, if such determination cannot be made, by a nationally
recognized independent investment banking firm selected by the Board of
Directors of the Company (or if such selection cannot be made, by a nationally
recognized independent investment banking firm selected by the American
Arbitration Association in accordance with its rules).
(viii) [Reserved]
(ix) Adjustments made pursuant to clauses (iii), (iv) and (v) above shall be
made on the date such dividend, subdivision, split-up, combination or
distribution, as the case may be, is made, and shall become effective at the
opening of business on the business day next following the record date for the
determination of stockholders entitled to such dividend, subdivision, split-up,
combination or distribution.
(x) In the event the Company shall propose to take any action of the types
described in clauses (iii), (iv) or (v) of this Section 5, the Company shall
forward, at the same time and in the same manner, to the Holder of this Warrant
such notice, if any, which the Company shall give to the holders of capital
stock of the Company.
(xi) In any case in which the provisions of this Section 5 shall require
that an adjustment shall become effective immediately after a record date for an
event, the Company may defer until the occurrence of such event issuing to the
Holder of all or any part of this Warrant which is exercised after such record
date and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon such exercise
before giving effect to such adjustment exercise; provided, however, that the
Company shall deliver to such Holder a due ▇▇▇▇ or other appropriate instrument
evidencing such Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
SECTION 6. OWNERSHIP.
---------
6.1. OWNERSHIP OF THIS WARRANT. The Company may deem and treat the person
-------------------------
in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 6.
6.2. TRANSFER AND REPLACEMENT. This Warrant and all rights hereunder are
------------------------
transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees (and in the name of the Holder, if a partial transfer is
effected) shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 13
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it of
-4-
the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 6, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay all
expenses, taxes and other charges payable in connection with any transfer or
replacement of this Warrant, other than stock transfer taxes (if any) payable in
connection with a transfer of this Warrant, which shall be payable by the
Holder. Holder will not transfer this Warrant and the rights hereunder except in
compliance with federal and state securities laws.
SECTION 7. MERGERS, CONSOLIDATION, SALES. In the case of any proposed
-----------------------------
consolidation or merger of the Company with another entity, or the proposed sale
of all or substantially all of its assets to another person or entity, or any
proposed reorganization or reclassification of the capital stock of the Company,
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the Holder
of this Warrant shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein, in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable hereunder, such
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for the number of shares of such Common Stock
purchasable hereunder immediately before such consolidation, merger, sale,
reorganization or reclassification. In any such case appropriate provision shall
be made with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof shall thereafter be applicable as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of this Warrant.
SECTION 8. NOTICE OF DISSOLUTION OR LIQUIDATION. In case of any distribution of
------------------------------------
the assets of the Company in dissolution or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no distribution to
shareholders until the expiration of thirty (30) days from the date of mailing
of the aforesaid notice and, in any case, the Holder hereof may exercise this
Warrant within thirty (30) days from the date of the giving of such notice, and
all rights herein granted not so exercised within such thirty-day period shall
thereafter become null and void.
SECTION 9. NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors of the
---------------------------------
Company shall declare any dividend or other distribution on its Common Stock
except out of earned surplus or by way of a stock dividend payable in shares of
its Common Stock, the Company shall mail notice thereof to the Holder hereof not
less than thirty (30) days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution, and
the Holder hereof shall not participate in such dividend or other distribution
unless this Warrant is exercised prior to such record date. The provisions of
this Section 9 shall not apply to distributions made in connection with
transactions covered by Section 7.
SECTION 10. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
-----------------
exercise of this Warrant but in any case where the Holder would, except for the
provisions of this Section 10, be entitled under the terms hereof to receive a
fractional share upon the complete exercise of this Warrant, the Company shall,
upon the exercise of this Warrant for the largest number of whole shares then
called for, pay a sum in cash equal to the excess of the value of such
fractional share (determined in such reasonable manner as may be prescribed in
good faith by the Board of Directors of the Company) over the Warrant Price for
such fractional share.
SECTION 11. SPECIAL ARRANGEMENTS OF THE COMPANY. The Company covenants and
-----------------------------------
agrees that during the Term of this Warrant, unless otherwise approved by the
Holder of this Warrant:
-5-
11.1. WILL RESERVE SHARES. The Company will reserve and set apart and have
-------------------
available for issuance at all times, free from preemptive or other preferential
rights, the number of shares of authorized but unissued Common Stock deliverable
upon the exercise of this Warrant.
11.2. WILL NOT AMEND CERTIFICATE. The Company will not amend its
--------------------------
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. WILL BIND SUCCESSORS. This Warrant shall be binding upon any
--------------------
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. REGISTRATION RIGHTS; ETC. The Company agrees to provide to the
------------------------
Holder written registration rights, substantively the same as now exist for all
other registration rights holders with respect to the common stock of the
Company, on or before May 1, 1999, which shall be in form reasonably acceptable
to Holder.
SECTION 13. NOTICES. Any notice or other document required or permitted to be
-------
given or delivered to the Holder shall be delivered at, or sent by certified or
registered mail to, the Holder at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, with a copy to Holder at Riverway II, West Office Tower, ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Legal Department or to
such other address as shall have been furnished to the Company in writing by the
Holder. Any notice or other document required or permitted to be given or
delivered to the Company shall be delivered at, or sent by certified or
registered mail to, the Company at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, or to such other address as shall have been furnished in writing to the
Holder by the Company. Any notice so addressed and mailed by registered or
certified mail shall be deemed to be given when so mailed. Any notice so
addressed and otherwise delivered shall be deemed to be given when actually
received by the addressee.
SECTION 14. NO RIGHTS AS STOCKHOLDER: LIMITATION OF LIABILITY. This Warrant
-------------------------------------------------
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No provision
hereof, in the absence of affirmative action by the Holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the Warrant Price
hereunder or as a shareholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
SECTION 15. LAW GOVERNING. THE VALIDITY, INTERPRETATION, AND ENFORCEMENT OF THIS
-------------
WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE W1TH THE LAWS OF THE
STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 16. MISCELLANEOUS.
-------------
(a) This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by both parties
(or any respective predecessor in interest thereof). The headings in this
Warrant are for purposes of reference only and shall not affect the meaning or
construction of any of the provisions hereof.
(b) All capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Loan Agreement.
-6-
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer on December 18, 1998.
TUT SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------
Title: CEO
------------------
-7-
FORM OF NOTICE OF EXERCISE
[TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase ___ shares of Common
Stock which the undersigned is entitled in purchase by the terms of the within
Warrant according to the conditions thereof, and herewith
[check one]
. makes payment of $_______ therefor; or
. directs the Company to issue ______ shares, and
to withhold ____ shares in lieu of payment of the
Warrant Price, as described in Section 2.1 of the
Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The shares are to be issued in certificates of the following
denominations:
___________________________
[Type Name of Holder]
By: _______________________
Title: ____________________
Dated: _____________________
-8-
FORM OF ASSIGNMENT
(ENTIRE)
[TO BE SIGNED ONLY UPON TRANSFER OF ENTIRE WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto ___________________ all rights of the undersigned under and
pursuant to the within Warrant, and the undersigned does hereby irrevocably
constitute and appoint ___________________________ Attorney to transfer the said
Warrant on the books of the Company, with full power of substitution.
____________________________
[Type Name of Holder]
By: _______________________
Title: ____________________
Dated: ______________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
-9-
FORM OF ASSIGNMENT
(PARTIAL)
[TO BE SIGNED ONLY UPON PARTIAL TRANSFER OF WARRANT]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
__________________ (i) the rights of the undersigned to purchase _____ shares
of Common Stock under and pursuant to the within Warrant, and (ii) on a
non-exclusive basis, all other rights of the undersigned under and pursuant to
the within it being understood that the undersigned shall retain, severally (and
not jointly) with the transferee(s) named herein, all right assigned on such
non-exclusive basis. The undersigned does hereby irrevocably constitute and
appoint ___________________ Attorney to transfer the said Warrant on the books
of the Company, with full power of substitution.
__________________________
[Type Name of Holder]
By: ______________________
Title: ___________________
Dated: ______________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
-10-