EXHIBIT 10.5
________________________________________________________________________________
ALTEON NETWORKS, INC.
LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
Table of Contents
Page
1. Definitions and Construction......................................................................... 1
1.1 Definitions................................................................................. 1
2. Loan and Terms of Payment............................................................................ 10
2.1 Revolving Facility.......................................................................... 10
2.2 Equipment Facility.......................................................................... 12
2.3 Overadvances................................................................................ 13
2.4 Interest Rates, Payments, and Calculations.................................................. 13
2.5 Crediting Payments.......................................................................... 14
2.6 Fees........................................................................................ 14
2.7 Additional Costs............................................................................ 14
2.8 Term........................................................................................ 15
3. Conditions of Loans.................................................................................. 15
3.1 Conditions Precedent to Initial Advance..................................................... 15
3.2 Conditions Precedent to all Advances........................................................ 16
4. Creation of Security Interest........................................................................ 16
4.1 Grant of Security Interest.................................................................. 16
4.2 Delivery of Additional Documentation Required............................................... 17
4.3 Right to Inspect............................................................................ 17
5. Representations and Warranties....................................................................... 18
5.1 Due Organization and Qualification.......................................................... 18
5.2 Due Authorization; No Conflict.............................................................. 18
5.3 No Prior Encumbrances....................................................................... 18
5.4 Bona Fide Eligible Accounts................................................................. 18
5.5 Merchantable Inventory...................................................................... 18
5.6 Name; Location of Chief Executive Office.................................................... 18
5.7 Litigation.................................................................................. 18
5.8 No Material Adverse Change in Financial Statements.......................................... 19
5.9 Solvency.................................................................................... 19
5.10 Regulatory Compliance....................................................................... 19
i
Table Of Contents
(Continued)
Page
5.11 Environmental Condition..................................................................... 19
5.12 Taxes....................................................................................... 19
5.13 Subsidiaries................................................................................ 20
5.14 Government Consents......................................................................... 20
5.15 Full Disclosure............................................................................. 20
6. Affirmative Covenants................................................................................ 20
6.1 Good Standing............................................................................... 20
6.2 Government Compliance....................................................................... 20
6.3 Financial Statements, Reports, Certificates................................................. 20
6.4 Inventory; Returns.......................................................................... 21
6.5 Taxes....................................................................................... 21
6.6 Insurance................................................................................... 22
6.7 Principal Depository........................................................................ 22
6.8 Quick Ratio................................................................................. 22
6.9 Minimum Cash................................................................................ 22
6.10 Profitability............................................................................... 22
6.11 Further Assurances.......................................................................... 22
7. Negative Covenants................................................................................... 23
7.1 Dispositions................................................................................ 23
7.2 Change in Business.......................................................................... 23
7.3 Mergers or Acquisitions..................................................................... 23
7.4 Indebtedness................................................................................ 23
7.5 Encumbrances................................................................................ 23
7.6 Distributions............................................................................... 23
7.7 Investments................................................................................. 24
7.8 Transactions with Affiliates................................................................ 24
7.9 Subordinated Debt........................................................................... 24
7.10 Inventory................................................................................... 24
7.11 Compliance.................................................................................. 24
ii
Table Of Contents
(Continued)
Page
8. Events of Default.................................................................................... 24
8.1 Payment Default............................................................................. 24
8.2 Covenant Default............................................................................ 24
8.3 Material Adverse Change..................................................................... 25
8.4 Attachment.................................................................................. 25
8.5 Insolvency.................................................................................. 25
8.6 Other Agreements............................................................................ 25
8.7 Subordinated Debt........................................................................... 26
8.8 Judgments................................................................................... 26
8.9 Misrepresentations.......................................................................... 26
9. Bank's Rights and Remedies........................................................................... 26
9.1 Rights and Remedies......................................................................... 26
9.2 Power of Attorney........................................................................... 27
9.3 Accounts Collection......................................................................... 28
9.4 Bank Expenses............................................................................... 28
9.5 Bank's Liability for Collateral............................................................. 28
9.6 Remedies Cumulative......................................................................... 28
9.7 Demand; Protest............................................................................. 28
10. Notices.............................................................................................. 29
11. Choice of Law and Venue; Jury Trial Waiver........................................................... 29
12. General Provisions................................................................................... 29
12.1 Successors and Assigns...................................................................... 29
12.2 Indemnification............................................................................. 30
12.3 Time of Essence............................................................................. 30
12.4 Severability of Provisions.................................................................. 30
12.5 Amendments in Writing, Integration.......................................................... 30
12.6 Counterparts................................................................................ 30
12.7 Survival.................................................................................... 30
12.8 Confidentiality............................................................................. 30
iii
This Loan and Security Agreement is entered into as of March 20, 1998, by
and between Silicon Valley Bank ("Bank") and Alteon Networks, Inc ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Account Audit" means an audit of the Revolving Collateral, Borrower's
Accounts and/or Borrower's Books prepared by Bank in accordance with generally
accepted business and accounting practices in form and substance acceptable to
Bank.
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a cash advance or cash advances under
the Revolving Facility or the Equipment Facility.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Backlog" means the backlog reported from time to time in backlog
reports provided by Borrower to Bank under Section 6.3
"Bank Expenses" means all: reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of
appeal), whether or not suit is brought.
1
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1 hereof.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the Revolving Collateral and the Equipment
Collateral, provided, however, that upon termination of the Revolving Facility,
"Collateral" shall only mean the Equipment Collateral.
"Committed Line" means One Million Five Hundred Thousand Dollars
($1,500,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Revolving
Advances made under this Agreement and the current portion of Equipment
Advances, including all Indebtedness that is payable upon demand or within one
year from the date of determination thereof unless such Indebtedness is
renewable or extendable at the
2
option of - Borrower or any Subsidiary to a date more than one year from the
date of determination, but excluding deferred revenue and Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at the end of
a given day.
"Debt Service Coverage" means, measured on a monthly basis, on a
rolling three (3) months consolidated basis determined in accordance with GAAP,
Borrower's earnings before interest, taxes, depreciation and amortization
(EBITDA) divided by the current portion of Borrower's long-term Indebtedness
plus interest expense.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's representations
and warranties to Bank set forth in Section 5.4; provided, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon thirty (30) days prior written notification giving
the reasons thereof to Borrower in accordance with the provisions hereof.
Unless otherwise agreed to by Bank, Eligible Accounts shall not include the
following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts, and Accounts arising from products shipped to or services
provided to branches or offices located in the United States of any account
debtor that does not have its principal place of business in the United States;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
3
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty-
five percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except (i) for the Accounts of Sun Microsystems,
Inc., Fuji Xerox, NEC and IBM for which the applicable percentage shall be fifty
percent (50%), and (ii) other Accounts approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank reasonably
believes that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means: (i) Accounts with respect to which
the account debtor is NEC or Fuji Xerox and (ii) Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a case-
by-case basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" or "Equipment Advances" means a cash advance or
cash advances under the Equipment Facility.
"Equipment Collateral" means all the property described on Exhibit ▇-
▇.
"Equipment Committed Line" means Two Million Dollars ($2,000,000).
"Equipment Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.2 hereof.
"Equipment Availability Date" means the date that is twelve (12)
months from the date of this Agreement.
"Equipment Maturity Date" means the date that is thirty-six (36)
months from the Equipment Availability Date.
"Equipment Obligations" means, to the extent such amount relates
solely to the Equipment Facility: all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement (other
than the Revolving Obligations) or any other Loan Document, whether absolute or
contingent, due or to become due, now existing or hereafter
4
arising, including any interest that accrues after the commencement of an
Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property" means any copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work thereof, whether published or unpublished, now
owned or hereafter acquired; any patents, trademarks, servicemarks, and
applications therefor; any trade secret rights, including any rights to
unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; any
license of any of the foregoing, now owned or hereafter acquired, or any claims
for damages by way of any past, present and future infringement of any of the
foregoing.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and Borrower's Books relating to any of
the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
5
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower in connection with this Agreement, and any other
agreement entered into between Borrower and Bank in connection with this
Agreement, all as amended or extended from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper, and Borrower's Books relating
to any of the foregoing.
"Obligations" means both the Revolving Obligations and the Equipment
Obligations.
"Payment Date" means the nineteenth (19th) calendar day of each month
commencing on the first such date after the Closing Date.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any Loan Document.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness to trade creditors and with respect to surety
bonds and similar obligations incurred in the ordinary course of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of any other Subsidiary (provided that the primary
obligations are not prohibited hereby);
6
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such equipment
or the fair market value of such equipment on the date of acquisition;
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within two (2) years from the date of acquisition thereof;
(b) certificates of deposit maturing no more than one (1) year
from the date of creation thereof and commercial paper maturing no more than one
(1) year from the date of creation thereof having the highest rating obtainable
from either Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investor Services, Inc.;
(c) Extensions of credit in the nature of accounts receivable or
note receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(d) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(e) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(f) Investments consisting of (i) compensation of employees,
officers and directors of Borrower so long as the Board of Directors of Borrower
determines that such compensation is in the best interests of Borrower, (ii)
travel advances, employee relocation loans and other employee loans and advances
in the ordinary course of business, (iii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower, and (iv)
other loans to officers and employees approved by the Board of Directors; and
(g) Other Investments not in excess of $200,000 at any time.
"Permitted Liens" means:
(a) any Liens existing on the Closing Date and disclosed in the
Schedule or arising under the terms of this Agreement;
7
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided that at any time the same have priority over
any of Bank's security interests, Borrower may not request any Credit
Extensions;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement);
(e) Leases or subleases and licenses and sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license;
(f) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation that
existed at the time it became or becomes a Subsidiary); provided such Liens are
not granted in contemplation of or in connection with the acquisition of such
asset by Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(h) easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect;
(i) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with the
importation of goods;
(j) Liens that constitute rights of set-off of a customary
nature or banker's Liens with respect to amounts on deposit, whether arising by
operation of law or by contract, in connection with arrangement entered in to
with banks in the ordinary course of business;
(k) earn-out and royalty obligations existing on the date hereof
or entered into in connection with an acquisition permitted by Section 7.3 that
are not prior to the Lien of the Bank;
8
(l) Licenses of Borrower's Intellectual Property in the ordinary
course of business and licenses or similar arrangements of Intellectual Property
granted or existing in connection with any joint venture, collaboration,
strategic alliance, research and development partnerships or arrangements, and
any similar arrangements or agreements; and
(m) Liens, not otherwise permitted, which Liens do not in the
aggregate exceed $150,000 at any time.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the unrestricted
cash; unrestricted cash-equivalents; net, billed accounts receivable; and
investments with maturities of fewer than one year of Borrower determined in
accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
Chief Financial Officer and the Controller of Borrower.
"Revolving Advance" or "Revolving Advances" means a cash advance or
cash advances under the Revolving Facility.
"Revolving Collateral" means all the property described on
Exhibit A-1.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"Revolving Maturity Date" means the date immediately preceding the
first anniversary of the date of this Agreement.
"Revolving Obligations" means, to the extent such amounts relate
solely to the Revolving Facility: all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement (other
than the Equipment Facility) or any other Loan Document, whether absolute or
contingent, due or to become due, now existing or hereafter arising, including
any interest that accrues after the commencement of an Insolvency Proceeding and
including any debt, liability, or obligation owing from Borrower to others that
Bank may have obtained by assignment or otherwise.
"Schedule" means the schedule of exceptions, attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
9
"Subsidiary" means any corporation or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock of which by the
terms thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity shall, at the time as of which any determination is being
made, be owned by Borrower, either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount thereof
shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
"Total Liabilities" means, at any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with GAAP be
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but excluding deferred revenue.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Facility.
(a) Advances. Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make Revolving Advances to Borrower in an
aggregate amount not to exceed the lesser of the Committed Line or the Borrowing
Base, minus in each case the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit). For purposes of this
Agreement, "Borrowing Base" shall mean an amount equal to (i) eighty percent
(80%) of Eligible Accounts plus (ii) twenty-five percent (25%) of eligible raw
materials and finished goods inventory; provided that Revolving Advances under
clause (ii) shall not exceed the lesser of Five Hundred Thousand Dollars
($500,000) or twenty-five percent (25%) of Backlog. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this Section 2.1 may
be repaid and reborrowed at any time prior to the Revolving Maturity Date.
(b) Procedures. Whenever Borrower desires a Revolving Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. California time, on the Business Day that the Revolving Advance is to
be made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit B hereto. Bank is authorized to make
Revolving Advances under this Agreement, based upon instructions received from a
Responsible Officer, or without instructions if in Bank's discretion such
Revolving Advances are necessary to meet Revolving Obligations which have become
due and remain unpaid. Bank shall be entitled to rely on any telephonic notice
given by
10
a person who Bank reasonably believes to be a Responsible Officer, and Borrower
shall indemnify and hold Bank harmless for any damages or loss suffered by Bank
as a result of such reliance. Bank will credit the amount of Revolving Advances
made under this Section 2.1 to Borrower's deposit account.
(c) Maturity. The Revolving Facility shall terminate on the
Revolving Maturity Date, at which time all Revolving Advances under this Section
2.1 shall be immediately due and payable. Notwithstanding anything to the
contrary contained herein or in any Loan Document, upon termination of the
Revolving Facility and payment in full of the Revolving Obligations, the
Negative Pledge Agreement set forth at Exhibit E and the following Sections of
this Agreement shall terminate: 6.3(b) and (d); 6.4; 9.2(a), (b), (c), (e), and
9.3. Bank agrees to promptly execute such other documents and instruments as may
be reasonably requested by Borrower, including, without limitation, a UCC
termination or partial release, to evidence such termination and the release of
the Revolving Collateral.
2.1.1 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued letters of credit (each a "Letter of
Credit," collectively, the "Letters of Credit") for the account of Borrower in
an aggregate face amount not to exceed the lesser of (i) the Committed Line or
(ii) the Borrowing Base, and minus in each case the sum of the then outstanding
principal balance of the Advances and the face amount of outstanding Letters of
Credit; provided that the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) shall not in any case
exceed Seven Hundred Fifty Thousand Dollars ($750,000). Each such Letter of
Credit shall have an expiry date no later than the Revolving Maturity Date;
provided that the expiry date may be up to 90 days after the Revolving Maturity
Date as long as Borrower secures its reimbursement and other obligations in
connection with any Letter of Credit outstanding after such date with cash on
terms reasonably acceptable to Bank. All such Letters of Credit shall be, in
form and substance reasonably acceptable to Bank and shall be subject to the
terms and conditions of Bank's form of application and letter of credit
agreement. Borrower shall pay Bank a fee equal to one percent (1.0%) of the face
amount of each Letter of Credit on the date such Letter of Credit is issued. All
amounts actually paid by Bank in respect of a Letter of Credit shall, when paid,
constitute an Advance under this Agreement.
(b) The obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend and hold Bank harmless from any loss, cost,
expense or liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any Letters of Credit, excluding Bank's
gross negligence or willful misconduct.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a demand for payment
is made under any such
11
Letter of Credit, Bank shall treat such demand as an advance to Borrower of the
equivalent of the amount thereof (plus cable charges) in United States currency
at the then prevailing rate of exchange in San Francisco, California, for sales
of that other currency for cable transfer to the country of which it is the
currency.
(d) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a reserve under the
Committed Line for Letters of Credit against fluctuations in currency exchange
rates, in an amount equal to ten percent (10%) of the face amount of such Letter
of Credit. The amount of such reserve may be amended by Bank from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Committed Line shall be reduced by the amount of such reserve for so
long as such Letter of Credit remains outstanding.
2.2 Equipment Facility.
(a) Equipment Advances. Subject to and upon the terms and
conditions of this Agreement, Bank agrees, at any time from the date of this
Agreement through the Equipment Availability Date to make Equipment Advances to
Borrower in an aggregate principal amount of up to Two Million Dollars
($2,000,000); provided that Equipment Advances may not exceed One Million
Dollars ($1,000,000) until Bank receives a forecast approved by Borrower's board
of directors concerning Borrower's business for not less than four quarters
after the Closing Date, which forecast is reasonably acceptable to Bank in form
and substance. On the date of each Equipment Advance, Borrower shall provide
invoices and other documents as reasonably requested by Bank, in form and
content satisfactory to Bank, demonstrating that the Equipment Advances then
outstanding (A) shall be used to finance or refinance, as the case may be,
Equipment reasonably acceptable to Bank (which in any case for the initial
Equipment Advance shall have been purchased after July 2, 1997 and for
subsequent Equipment Advances shall have been purchased contemporaneously with
the date of the request for the Equipment Advance), and (B) shall not exceed one
hundred percent (100%) of the cost of such Equipment, excluding any and all
installation, freight or warranty expenses or sales taxes, and (C) that no more
than thirty-three percent (33%) of the aggregate outstanding Equipment Advances
shall finance software licenses, leasehold improvements, taxes, freight or
installation costs, used equipment, or other soft costs. Each Equipment Advance
must be in an amount exceeding Fifty Thousand Dollars ($50,000). There may be no
more than six (6) Equipment Advances. Amounts borrowed pursuant to this Section
2.2 may be repaid at any time prior to the Equipment Maturity Date without
premium or penalty. Amounts borrowed pursuant to this Section 2.2 may not be
reborrowed once repaid.
(b) Procedures. Whenever Borrower desires an Equipment
Advance, Borrower shall notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. California time, one (1) Business Day before the day on
which the Equipment Advance is requested to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit B hereto. The notice shall be signed by a Responsible Officer and
include a copy of the invoice for the Eligible Equipment to be financed.
12
(c) Interest and Principal. Interest shall accrue from the
date of each Equipment Advance at the rate specified in Section 2.4(a), and
shall be payable monthly on the Payment Date for each month through the month in
which the Equipment Availability Date falls. Bank shall, at its option, charge
such interest, all Bank Expenses, and all Periodic Payments against any of
Borrower's deposit accounts or against the Equipment Committed Line, in which
case those amounts shall thereafter accrue interest at the rate then applicable
hereunder. Each Equipment Advance will be payable in thirty-four (34) equal
monthly installments of principal, plus accrued interest, on the Payment Date
for each month after the date of such Equipment Advance.
(d) Maturity. The Equipment Facility shall terminate on the
Equipment Maturity Date, at which time all Equipment Obligations owing under
this Section 2.2 and all other amounts under this Agreement shall be immediately
due and payable.
2.3 Overadvances. If, at any time or for any reason, the amount of
Revolving Obligations owed by Borrower to Bank pursuant to Section 2.1 of this
Agreement is greater than the lesser of the Committed Line or the Borrowing
Base, Borrower shall immediately pay to Bank, in cash, the amount of such
excess. If, at any time or for any reason, the amount of Equipment Obligations
owed by Borrower to Bank pursuant to Section 2.2 of this Agreement is greater
than the Equipment Committed Line, Borrower shall immediately pay to Bank, in
cash, the amount of such excess.
2.4 Interest Rates, Payments, and Calculations.
(a) Interest Rate.
i) Revolving Advances. Except as set forth in Section
2.4(b), all Revolving Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to three-quarters of one percentage point (0.75%) above
the Prime Rate.
ii) Equipment Advances. Except as set forth in Section
2.4(b), all Equipment Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to one percentage point (1%) above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from
and after the occurrence and during the continuance of an Event of Default, at a
rate equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
the Payment Date of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder.
13
(d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.5 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment shall be immediately applied to conditionally
reduce Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when presented for payment. Notwithstanding
anything to the contrary contained herein, any domestic wire transfer or payment
received by Bank after 2:00 p.m. California time shall be deemed to have been
received by Bank as of the opening of business on the immediately following
Business Day. Whenever any payment to Bank under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.6 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A facility fee equal to Seven Thousand
Dollars ($7,000) which fee shall be due on the Closing Date and shall be fully
earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts (not to
exceed $1,500 per audit, as long as an Event of Default has not occurred, at
which time reasonable fees will be assessed), and for the customary and
reasonable out-of-pocket costs for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by Bank or its
agents;
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses (which fees and expenses shall not exceed $6,000 in the aggregate),
and, after the date hereof, all Bank Expenses, including reasonable attorneys'
fees and expenses, as and when they become due.
2.7 Additional Costs. In case any change in any law, regulation, treaty
or official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the
14
transactions contemplated hereby (except for taxes on the overall net income of
Bank imposed by the United States of America or any political subdivision
thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
(d) and the result of any of the foregoing is to increase the
cost to Bank, reduce the income receivable by Bank or impose any expense upon
Bank with respect to any loans, Bank shall notify Borrower thereof.
Borrower agrees to pay to Bank the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Bank of a statement of the amount
and setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error; provided,
however, that Borrower shall not be liable for any such amount attributable to
any period prior to the date of hundred eighty (180) days prior to the date of
such statement.
2.8 Term. This Agreement shall become effective on the Closing Date and,
subject to Section 12.7 and 2.1(c), shall continue in full force and effect for
a term ending on the Equipment Maturity Date. Notwithstanding the foregoing,
Bank shall have the right to terminate its obligation to make Advances under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the (1) Revolving Collateral shall remain in effect for so long as any
Obligations (excluding Obligations under Section 2.7 and 12.2 to the extent they
remain inchoate at the time outstanding payment obligations are paid in full)
are outstanding; and (2) Equipment Collateral shall remain in effect for so long
as any Equipment Obligations (excluding the Obligations under Sections 2.7 and
12.2 to the extent they remain inchoate at the time outstanding payment
obligations are paid in full) are outstanding.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Advance. The obligation of Bank to
make the initial Advance or Equipment Advance is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a negative pledge agreement in substantially the same form
as Exhibit E hereto;
15
(d) financing statements (Forms UCC-I);
(e) an Account Audit to be performed by Bank (condition to
Revolving Advances only);
(f) insurance certificate;
(g) A/R and A/P agings;
(h) backlog report and Inventory schedule;
(i) payment of the fees and Bank Expenses then due specified in
Section 2.6 hereof; and
(j) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank to make
each Advance, including the initial Advance, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1;
(b) timely receipt by Bank of the invoices or other documents as
provided in Section 2.2; and
(c) except as otherwise disclosed to and receipt is acknowledged
by Bank, the representations and warranties contained in Section 5 shall be true
and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance (except to the extent they relate
specifically to any earlier date, in which case such representations and
warranties shall continue to have been true and accurate as of such date).
Except as otherwise disclosed to and receipt is acknowledged by Bank, the making
of each Advance shall be deemed to be a representation and warranty by Borrower
on the date of such Advance as to the accuracy of the facts referred to in this
Section 3.2(c).
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Revolving Collateral in order to secure prompt repayment of the
Revolving Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents solely as they relate
to the Revolving Facility (except that upon termination of the Revolving
Facility with payment in full of the Revolving Obligations, the Revolving
Collateral shall be released by Bank and shall not secure any of Borrower's
obligations under this Agreement, any other Loan
16
Document, or any other agreement with Bank. With respect to the Equipment
Facility, Borrower grants and pledges to Bank a continuing security interest in
all Equipment Collateral in order to secure prompt repayment of the Equipment
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interests constitute valid, first priority security
interests in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof,
in each case, to the extent that a security interest in such Collateral can be
perfected by the filing of a financing statement or, in the case of Collateral
consisting of instruments, documents, chattel paper or certificated securities,
to the extent that Bank takes possession of such Collateral. Bank agrees to
execute and deliver to Borrower from time to time such Lien releases as Borrower
may reasonably request and as are necessary to give to other lenders which
finance equipment (other than the Equipment Collateral) for Borrower a first
priority security interest in the equipment financed so long as the Liens and
the Indebtedness incurred with respect to such equipment financing are permitted
under this Agreement. NOTWITHSTANDING ANYTHING ELSE CONTAINED HEREIN, INCLUDING,
WITHOUT LIMITATION, ANY CROSS-DEFAULT OR CROSS-COLLATERAL PROVISIONS, BANK SHALL
ONLY BE ALLOWED TO PROCEED AGAINST THE REVOLVING COLLATERAL IF AN EVENT OF
DEFAULT HAS OCCURRED AND IS CONTINUING AND, AT THE TIME OF DEFAULT, BORROWER
OWES BANK PRINCIPAL OR INTEREST UNDER THE REVOLVING FACILITY.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form reasonably satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents
(provided Bank will not apply customer checks deposited with Bank in the
ordinary course of business against the Obligations that are not then due and
payable unless an Event of Default has occurred and is continuing).
Notwithstanding anything to the contrary, concurrent with Borrower's purchase of
Equipment pursuant to the Equipment Facility: (1) Borrower shall list the
specific equipment purchased on Exhibit A-2 and provide Bank with an updated
Exhibit A-2 and (2) Bank shall prepare a financing statement listing the
purchased Equipment, which shall be executed by Borrower and filed by Bank.
Notwithstanding anything to the contrary, with respect to the Equipment
Facility, Borrower shall not be required to, and Bank shall not, sign and/or
file a financing statement which contains a general reference to all equipment
purchased pursuant to this Agreement (or similar wording).
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
17
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except for states as to which any
failure to so qualify would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent and
the Loan Documents constitute an assignment. Borrower is not in default under
any agreement to which it is a party or by which it is bound, which default
could reasonably be expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor or such
other Person as may be instructed by account debtor. Borrower has not received
notice of actual or imminent Insolvency Proceeding of any account debtor that is
included in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending by or against Borrower or any Subsidiary before any court
or administrative agency in which an adverse decision could reasonably be
expected to have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral. Borrower does
not have knowledge of any such pending or threatened actions or proceedings.
18
5.8 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to
Bank.
5.9 Solvency. The fair saleable value of Borrower's assets (including
goodwill) exceeds the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions contemplated by this
Agreement; and Borrower is able to pay its respective debts (including trade
debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could reasonably be expected to have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). To the best of Borrower's knowledge,
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
19
5.13 Subsidiaries. Borrower does not own any stock, partnership interest
or other, equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted except
where the failure to obtain any such consent, approval or authorization, to make
any such declaration or filing, or to be given any such notice could not
reasonably be expected to have a Material Adverse Effect.
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS.
Subject to Section 2.1(c), Borrower covenants and agrees that, until
payment in full of all outstanding Obligations, and for so long as Bank may have
any commitment to make an Advance hereunder, Borrower shall do all of the
following:
6.1 Good Standing. Borrower shall maintain or cause to be maintained its
and each of its Subsidiaries' corporate existence and good standing in its
jurisdiction of incorporation and maintain qualification in each jurisdiction in
which the failure to so qualify could reasonably be expected to have a Material
Adverse Effect. Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, to the extent consistent with prudent management of
Borrower's business, in force all licenses, approvals and agreements, the loss
of which is reasonably likely to have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates.
(a) Borrower shall deliver to Bank: (i) as soon as available,
but in any event within thirty (30) days after the end of each month, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during such period, certified by a Responsible Officer;
(ii) as soon as available, but in any event within ninety (90) days after the
end of Borrower's fiscal year, audited consolidated financial statements of
Borrower prepared in accordance with GAAP, consistently applied, together with
an unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; provided that any "Big
Six" accounting firm shall be deemed
20
acceptable to Bank; (iii) within five (5) days upon becoming available, copies
of all statements, reports and notices sent or made available generally by
Borrower to its security holders or to any holders of Subordinated Debt and all
reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission;
(iv) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
($100,000) or more; (v) prompt notice of any material change in the composition
of the Intellectual Property; and (vi) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
(b) Within twenty (20) days after Borrower's month-end, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with a backlog
report and aged listings of accounts receivable and accounts payable.
(c) Borrower shall deliver to Bank within thirty (30) days of
the end of each month Borrower's monthly financial statements and a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
D hereto.
(d) Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense (not to exceed $1,500), provided that
such audits will be conducted no more often than every six (6) months unless an
Event of Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same basis
and in accordance with the usual customary practices of Borrower, as they exist
at the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.
21
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
of applying the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property; provided, that after the occurrence and during
the continuance of an Event of Default, all proceeds payable under any such
policy shall, at the option of Bank, be payable to Bank for application to the
Obligations.
6.7 Principal Depository. To the extent permitted by the investment
policy adopted by Borrower's board of directors, Borrower shall maintain its
principal depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
month, a ratio of Quick Assets to Current Liabilities of at least 1.00 to 1.00.
6.9 Minimum Cash. Borrower shall maintain, as of the last day of each
month, unrestricted cash and cash equivalents of at least Three Million Dollars
($3,000,000).
6.10 Profitability. Borrower may incur net losses in the quarters ending
on the following dates in amounts not to exceed the following for such
respective quarters: March 31, 1998 in the amount of Four Million Five Hundred
Thousand Dollars ($4,500,000); June 30, 1998 in the amount of Two Million Two
Hundred Thousand Dollars ($2,200,000); September 30, 1998 in the amount of One
Million Five Hundred Thousand Dollars ($1,500,000); and December 31, 1998 in the
amount of One Million Dollars ($1,000,000).
6.11 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
22
7. NEGATIVE COVENANTS.
Subject to Section 2.1(c), Borrower covenants and agrees that, so long as
any credit hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii)Transfers in the ordinary course of
Borrower's business of licenses and similar arrangements for the use of the
Intellectual Property of Borrower or its Subsidiaries, including transfers
granted or existing in connection with any joint venture, collaboration,
strategic alliance, research and development partnerships, and any similar
arrangements or agreements; or (iii) Transfers of worn-out or obsolete Equipment
or Equipment financed by other vendors; (iv) Transfers which constitute
liquidation of Investments permitted under Section 7.7; (v) transfers in
connection with Permitted Investments; and (vi) other Transfers not otherwise
permitted by this Section 7.1 not exceeding One Hundred Thousand Dollars
($100,000) in the aggregate in any fiscal year.
7.2 Change in Business. Without Bank's prior written consent, which will
not be unreasonably withheld, engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership of
greater than twenty-five percent (25%) of the common stock of Borrower.
Borrower will not, without reasonable prior written notification to Bank,
relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; provided
that such merger, consolidation and acquisition may be made as long as Borrower
is the surviving entity and an Event of Default does not exist before or after
giving effect to such transaction.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, other than payments made in an aggregate amount not to exceed $250,000
for the repurchase of stock effected in connection with the termination of ah
employee, officer or director, provided an Event of Default does not exist on
the date of such payment or would not exist after giving effect to such payment.
23
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person and except
for transactions that, in the aggregate, do not involve consideration of more
than $250,000 and loans to officers or employees approved by Borrower's board of
directors.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent, which shall not be unreasonably withheld.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for (i) Inventory sold in the ordinary course
of business, (ii) the locations set forth in the Schedule hereto, and (iii) such
other locations as Bank may approve in writing, Borrower shall keep the
Inventory only at the location set forth in Section 10 hereof and such other
locations of which Borrower gives Bank prior written notice and as to which
Borrower signs and files a financing statement where needed to perfect Bank's
security interest.
7.11 Compliance. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply
with the Federal Fair Labor Standards Act or violate any law or regulation,
which violation could have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Bank's Lien on the Collateral, or
permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal of, or any
interest on, any Advances when due and payable; or fails to pay any portion of
any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation under
Sections 6.7, 6.8, 6.9 or 6.10, or violates any of the covenants contained in
Article 7 of this Agreement, or
24
fails or neglects to perform, keep, or observe any other material term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement between
Borrower and Bank and as to any default under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure such
default within ten (10) days after Borrower receives notice thereof or any
Responsible Officer of Borrower becomes aware thereof; provided, however, that
if the default cannot by its nature be cured within the ten (10) day period or
cannot after diligent attempts by Borrower be cured within such ten (10) day
period, and such default is likely to be cured within a reasonable time, then
Borrower shall have an additional reasonable period (which shall not in any case
exceed thirty (30) days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse change in
Borrower's business or financial condition, or if there is a material impairment
of the prospect of repayment of any portion of the Obligations or a material
impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within twenty (20) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within twenty (20)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could reasonably be expected to have a Material Adverse
Effect;
25
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement existed in any warranty or representation set forth herein or in
any certificate delivered to Bank by any Responsible Officer pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan
Document at the time such representation or warranty was made or such
certificate was delivered.
9. BANK'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Revolving and/or Equipment Collateral, as
appropriate. Borrower agrees to assemble the Revolving and/or Equipment
Collateral, as appropriate, if Bank so requires, and to make the Revolving
and/or Equipment Collateral, as appropriate, available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Revolving
and/or Equipment Collateral, as appropriate, is located, to take and maintain
possession of the Revolving and/or Equipment Collateral, as appropriate, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in
26
order to exercise any of Bank's rights or remedies provided herein, at law, in
equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Revolving and/or Equipment Collateral, as appropriate. Bank is
hereby granted a license or other right, solely pursuant to the provisions of
this Section 9.1, to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Revolving and/or Equipment Collateral, as appropriate, in
completing production of, advertising for sale, and selling any Revolving and/or
Equipment Collateral, as appropriate, and, in connection with Bank's exercise of
its rights under this Section 9.1, Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(g) Sell the Revolving and/or Equipment Collateral, as
appropriate, at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such
places (including Borrower's premises) as Bank determines is commercially
reasonable, and apply any proceeds to the Obligations in whatever manner or
order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the
Revolving and/or Equipment Collateral, as appropriate, as provided above will be
paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (g) to dispose of the Collateral pursuant to the
Code; provided Bank may exercise such power of attorney to sign the name of
Borrower on any of the documents described in Section 4.2 regardless of whether
an Event of Default has occurred. The appointment of Bank as Borrower's
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of
27
the Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 Accounts Collection. After the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Upon the occurrence and during the continuation of an Event of Default, Borrower
shall collect all amounts owing to Borrower for Bank, receive in trust all
payments as Bank's trustee, and immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Revolving Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with its
obligations under the Code, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. Subject to
the foregoing, all risk of loss, damage or destruction of the Collateral shall
be borne by Borrower, except in the case of Bank's gross negligence or
intentional misconduct.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not inconsistent herewith as provided under
the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall
be effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
28
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: Alteon Networks, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank: Silicon Valley Bank
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
▇▇▇▇▇, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS.
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's
29
prior written consent, which consent may be granted or withheld in Bank's sole
discretion. Bank shall have the right without the consent of, but upon notice
to, Borrower to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank's obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold harmless
Bank and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by the Loan Documents and (b) all
losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a
result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be amended
or terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are merged into this Agreement and the
Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
(excluding Obligations under Section 2.7 and 12.2 to the extent they remain
inchoate at the time the outstanding payment Obligations are paid in full)
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run, provided that so
long as the obligations set forth in the first sentence of this Section 12.7
have been satisfied, and Bank has no commitment to make any Advances or to make
any other loans to Borrower, Bank shall release all security interests granted
hereunder and redeliver all Collateral held by it in accordance with applicable
law.
12.8 Confidentiality. In handling any confidential information Bank shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received-pursuant to this Agreement
except that disclosure of such information may be made (i) to the
30
subsidiaries or affiliates of Bank in connection with their present or
prospective business relations with Borrower, (ii) to prospective transferees or
purchasers of any interest in the Loans, provided that they have entered into a
comparable confidentiality agreement in favor of Borrower and have delivered a
copy to Borrower, (iii) as required by law, regulations, rule or order,
subpoena, judicial order or similar order, (iv) as may be required in connection
with the examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ALTEON NETWORKS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
------------------------
Title: Corporate Controller
----------------------
SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------
Title: Assistant Vice President
------------------------
31
SCHEDULE
1. Other Names under which Borrower has done business: Acteon Networks
2. Litigation:
A Complaint was served on Borrower alleging, among other things,
allegations of trademark infringement, misappropriation, and unlawful business
practices under the Federal Trademark Act and other relevant statutes.
3. Existing pertained Indebtedness:
(a) All indebtedness to Phoenix Leasing, the principal amount outstanding
being $996,346.56.
(b) All indebtedness to OCE-USA, Inc., the principal amount outstanding
being $12,935.00.
(c) All indebtedness to AT&T Capital Corporation, the principal amount
outstanding being $5,450.00.
(d) All indebtedness to Pitney ▇▇▇▇▇ Credit Corporation, the principal
amount outstanding being $6,879.10.
4. Inventory locations:
(a) Tanon Manufacturing, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇.
(b) International Manufacturing Services, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇.
(c) International Manufacturing Services Thailand Ltd. 49/12 Laim Chabang
Industrial Estate, M005, Tungsukhla, Sriracha Chonsuri, Thailand
#20230.
32
EXHIBIT A-1
-----------
The Revolving Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(b) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;
(c) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(d) All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, letters of credit, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired and Borrower's
Books relating to the foregoing; and
(e) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not include any
Intellectual Property, provided the Collateral shall include all the Accounts,
rights to payment, and proceeds arising out of the sale, licensing or other
disposition of any interest in the Intellectual Property. The Collateral shall
not include the Equipment and related property financed by Phoenix Leasing or
its affiliates to the extent such inclusion would violate the provisions of the
equipment leases or other agreements pursuant to which such property has been
financed, provided that such property (other than Equipment) will automatically
become collateral upon the nonapplicability of such provisions.
33
EXHIBIT A-2
-----------
The Equipment Collateral shall consist of all rights, title and interest of
Borrower in and to the personal property described on Attachment 1 hereto, and
such other Attachments as Bank and Borrower may from time to time approve,
together with all attachments, accessories, accessories, replacements,
substitutions, additions, and improvements to any of the foregoing, and all
proceeds thereof.
The following Equipment purchased by Buyer pursuant to the Equipment
Facility:
_____________________
34
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:_______________
FAX#: (▇▇▇) ▇▇▇-▇▇▇▇ TIME:_______________
-------------------------------------------------------------------------------
FROM:_____________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY:_____________________________________________________________
AUTHORIZED SIGNER'S NAME
PHONE NUMBER:_____________________________________________________________
FROM ACCOUNT #______________ TO ACCOUNT #___________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (REVOLVING ADVANCE) $______________________________
PRINCIPAL INCREASE (EQUIPMENT ADVANCE) $______________________________
PRINCIPAL PAYMENT (ONLY) $______________________________
INTEREST PAYMENT (ONLY) $______________________________
PRINCIPAL AND INTEREST (PAYMENT) $______________________________
OTHER INSTRUCTIONS:_______________________________________________________
---------------------------------------------------------------------------
Except as previously disclosed in writing to Bank, all representations and
warranties of Borrower stated in the Loan and Security Agreement are true,
correct and complete in all material respects as of the date of the telephone
request for and Advance confirmed by this Borrowing Certificate; provided,
however, that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
such date.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
-----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
________________________________ _____________________________
Authorized Requester Phone #
________________________________ _____________________________
Received By (Bank) Phone #
--------------------------------------------------------------------
Authorized Signature (Bank)
--------------------------------------------------------------------------------
35
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Alteon Networks, Inc. Lender: Silicon Valley Bank
Commitment Amount: $1,500,000
-------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _____ $_______
2. Additions (please explain on reverse) $_______
3. TOTAL ACCOUNTS RECEIVABLE $_______
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 50% over 90 day accounts $___________
6. Concentration Limits* $___________
7. Foreign Accounts (unless approved) $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Promotion or Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
14. Eligible Accounts (#3 minus #13) $_______
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_______
INVENTORY
16. Eligible raw materials and finished goods $_______
Inventory Value as of _____
17. LOAN VALUE OF INVENTORY (25% of #16) $________
BALANCES
18. Maximum Loan Amount $________
19. Total Funds Available [Lesser of #18 or $
(#15 plus #17)]
20. Present balance under Revolving Facility $________
21. RESERVE POSITION (#19 minus #20) $________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
* 50% concentration permitted for Sun Microsystems, Inc., Fuji Xerox, NEC, IBM
** Not to exceed lesser of $500,000 or 25% of Backlog
COMMENTS: -----------------------------
BANK USE ONLY
--------------------
Rec'd By:____________________
ALTEON NETWORKS, INC. Authorized Signer
Date:________________________
By:_______________________ Verified::__________________
Authorized Signer Authorized Signer
Date:________________________
_____________________________
36
EXHIBIT D
COMPLIANCE CERTFICATE
TO: SILICON VALLEY BANK
FROM: ALTEON NETWORKS, INC
The undersigned authorized officer of Alteon Networks, Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending __________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof unless otherwise previously disclosed in writing to, and
receipt of which is acknowledged by, Bank. Attached herewith are the required
documents supporting the above certification. The Officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
Reporting Covenant Required Complies
------------------ -------- --------
Monthly financial statements, Within 30 days of month end Yes No
Compliance Certificate
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings, Within 20 days of month end
Borrowing Base Certificate Yes No
A/R Audit Initial and Semi-Annual Yes No
Backlog Report & Inventory Schedule Within 20 days of month end Yes No
Reporting Covenant Required Actual Complies
------------------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.00:1.00 ________:1.00 Yes No
Minimum Cash $3,000,000 $_______ Yes No
Profitability: Quarterly $1.00** $_______
Yes No
**3/31/98 net loss *$4,500,000; 6/30/98 net loss *$2,200,000; 9/30/98 net loss
*$1,500,000; 12/31/98 net loss *$1,000,000
Comments Regarding Exceptions: See Attached BANK USE ONLY
--------------
Rec'd By:__________________
Sincerely, Authorized Signer
Date:______________________
Verified:__________________
Authorized Signer
Signature____________________ Date:______________________
Title________________________ Compliance Status: Yes No
Date_________________________
* lesser than
37
EXHIBIT E
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of March 20, 1998, by and between
Alteon Networks, Inc. ("Borrower") and SILICON VALLEY BANK ("Bank").
In connection with the Loan and Security Agreement being concurrently
executed between Borrower and Bank, Borrower agrees as follows:
1. Except as permitted in the Loan and Security Agreement, Borrower shall not
sell, transfer, assign, mortgage, pledge, lease, grant a security interest in,
or encumber any of Borrower's intellectual property, including, without
limitation, the following:
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protection in each work or authorship and derivative work
thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or held
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property rights
in computer software and computer software products now or hereafter existing,
created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections, including,
without limitation, improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including, without limitation,
the patents and patent applications (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Borrower connected with and symbolized by
such trademarks (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and future
infringements of any of the rights included above, with the right, but not the
obligation, to ▇▇▇ for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights, Patents or
Trademarks and all license fees and royalties arising from such use to the
extent permitted by such license or rights;
(h) All amendments, extensions, renewals and extensions of any of the
Copyrights, Patents or Trademarks; and
38
(i) All proceeds and products of the foregoing, including, without
limitation, all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
The foregoing not withstanding, Borrower shall be able to grant security
interests or licenses of its intellectual property in connection with any joint
venture, collaboration, strategic alliance, research and development partnership
and any similar arrangement or agreement.
2. It shall be an Event of Default under the Loan Documents between Borrower
and Bank if there is a breach of any term of this Negative Pledge Agreement.
3. Capitalized items used herein without definition shall have the same
meanings as set forth in the Loan and Security Agreement of even date herewith.
4. This Agreement shall terminate upon the termination of the Revolving
Facility.
Alteon Networks, Inc. Silicon Valley Bank
By: /s/ ▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------- ----------------------------
Title: Corporate Controller Title: Asst. Vice President
----------------------- -------------------------
39
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of May 29, 1998, by and
between Alteon Networks, Inc. ("Borrower") whose address is ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ and Silicon Valley Bank ("Bank") whose address is
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, a Loan and Security Agreement, dated March 20, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original principal amount of
One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) and a
Equipment Committed Line in the original principal amount of Two Million and
00/100 Dollars ($2,000,000.00), however capped at One Million and 00/100 Dollars
($1,000,000.00) until Borrower meets certain criteria as set forth in Section
2.2 (a) of the Loan Agreement. Defined terms used but not otherwise defined
herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement. Additionally,
Borrower has agreed with Bank not to mortgage, pledge, hypothecate, or otherwise
encumber any of its Intellectual Property, pursuant to a Negative Pledge
Agreement dated March 20, 1998.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement
1. The defined term "Current Liabilities" is hereby amended in part
to include deferred revenue.
2. The first sentence of sub-section (a) of Section 2.2 entitled
"Equipment Facility" is hereby amended in its entirety to read as
follows:
Subject to and upon the terms and conditions of this Agreement,
Bank agrees, at any time from the date of this Agreement through
the Equipment Availability Date to make Equipment Advances to
Borrower in an aggregate principal amount of up to Two Million
and 00/100 Dollars ($2,000,000.00).
1.
3. Section 6.8 entitled "Quick Ratio" is hereby amended in its
entirety to read as follows:
Borrower shall maintain, as of the last day of each month, a
ratio of Quick Assets to Current Liabilities minus deferred
revenue of at least 1.00 to 1.00.
4. Section 6.10 entitled "Profitability" is hereby amended in its
entirety to read as follows:
Borrower may incur net losses in the quarters ending on the
following dates in amounts not to exceed the following for such
respective quarters: Two Million Six Hundred Thousand and 00/100
Dollars ($2,600,000.00) for the quarter ending June 30, 1998; Two
Million and 00/100 Dollars ($2,000,000.00) for the quarter ending
September 30, 1998; and One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00) for the quarter ending December
31, 1998.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
2.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALTEON NETWORKS, INC. SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------ ----------------------------
Name: ▇▇▇▇▇ ▇▇▇▇ Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------- --------------------------
Title: Corporate Controller Title: Asst. Vice President
--------------------------- -------------------------
3.
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of July 15, 1998, by
and between Alteon Networks, Inc. ("Borrower") and Silicon Valley Bank ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, a Loan and Security Agreement, dated March 20, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original principal amount of
One Million Five Hundred Thousand and 001100 Dollars ($1,500;000.00) (the
"Revolving Facility"). Defined terms used but not otherwise defined herein
shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement Additionally,
Borrower has agreed with Bank not to mortgage, pledge, hypothecate, or otherwise
encumber any of its Intellectual Property, pursuant to a Negative Pledge
Agreement dated March 20, 1998.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Waiver of Financial Covenant Defaults.
1. Bank hereby waives Borrower's existing defaults under the Loan
Agreement by virtue of Borrower's failure to comply with the
Quick Ratio and Minimum Cash covenants as of the month ended May
31, 1998. Bank's waiver of Borrower's compliance of these
covenants shall apply only to the foregoing period. Accordingly,
for the month ended June 30, 1998, Borrower shall be in
compliance with these covenants.
Bank's agreement to waive the above-described defaults (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenants as of all other
dates and (2) shall not limit or impair the Bank's right to
demand strict performance of these covenants as of all other
dates and (3) shall not limit or impair the Bank's right to
demand strict performance of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
1.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALTEON NETWORKS, INC. SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------ ------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇ Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------- ---------------------------
Title: Corporate Controller Title: Asst. Vice President
--------------------------- ---------------------------
2.
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of September 4, 1998,
by and between Alteon Networks, Inc. ("Borrower") and Silicon Valley Bank
("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, a Loan and Security Agreement, dated March 20, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original principal amount of
One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (the
"Revolving Facility") and an Equipment Committed Line in the original principal
amount of Two Million and 00/100 Dollars ($2,000,000.00). Defined terms used but
not otherwise defined herein shall have the same meanings as in the Loan
Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement. Additionally,
Borrower has agreed with Bank not to mortgage, pledge, hypothecate, or otherwise
encumber any of its Intellectual Property, pursuant to a Negative Pledge
Agreement dated March 20, 1998.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents." Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. Waiver of Financial Covenant Defaults.
1. Bank hereby waives Borrower's existing defaults under the Loan
Agreement by virtue of Borrower's failure to comply with the
Profitability covenant as of the quarter ended June 30, 1998.
Bank's waiver of Borrower's compliance of this covenant shall
apply only to the foregoing period. Accordingly, for the quarter
ended September 30, 1998, Borrower shall be in compliance with
this covenant.
Bank's agreement to waive the above-described defaults (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenant as of all other
dates and (2) shall not limit or impair the Bank's right to
demand strict performance of this covenant as of all other dates
and (3) shall not limit or impair the Bank's right to demand
strict performance of all other covenants as of any date.
1.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALTEON NETWORKS, INC. SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------- --------------------------
Name: ▇▇▇▇▇ ▇▇▇▇ Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------ ------------------------
Title: Corporate Controller Title: Asst. Vice President
----------------------- -----------------------
2.
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of December 8, 1998, by
and between Alteon Networks, Inc. ("Borrower") and Silicon Valley Bank ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated March 20, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original principal amount of
One Million Five Hundred Thousand Dollars ($1,500,000) (the "Revolving
Facility") and an Equipment Committed Line in the original principal amount of
Two Million Dollars ($2,000,000). Defined terms used but not otherwise defined
herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement. Additionally,
Borrower has agreed with Bank not to mortgage, pledge, hypothecate, or otherwise
encumber any of its Intellectual Property, pursuant to a Negative Pledge
Agreement dated March 20, 1998.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents." Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement.
1. The following terms are hereby amended or incorporated into
Section 1.1 entitled "Definitions":
"Committed Line" means Three Million Dollars ($3,000,000).
"Equipment Availability Date" means December 8, 1999.
"Equipment Maturity Date" means the date that is 36 months from
the Equipment Availability Date.
"Equipment Committed Line" means Four Million Dollars
($4,000,000).
"Revolving Maturity Date" means December 8, 1999.
"Payment Date" means the 8th calendar day of each month.
2. Section 2.1 (a) entitled "Advances" is hereby amended to read as
follows:
1.
Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make Revolving Advances to Borrower in an
aggregate amount not to exceed the lesser of the Committed Line
or the Borrowing Base, minus, in each case the face amount of
outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit). For purposes of this Agreement, "Borrowing
Base" shall mean an amount equal to (i) $500,000 (or $700,000 if
only outstanding Letters of Credit including drawn but
unreimbursed Letters of Credit comprise the Obligations under the
Committed Line) plus (ii) eighty percent (80%) of Eligible
Accounts plus (iii) twenty-five percent (25%) of eligible raw
materials and finished goods inventory "); provided that
Revolving Advances under clause (iii) shall not exceed the lesser
of Five Hundred Thousand Dollars ($500,000) or twenty-five
percent (25%) of Backlog. (Clause (ii) and Clause (iii) shall be
referred to as the "Advance Rate." Notwithstanding the
foregoing, in the event Borrower requests Advances in excess of
$500,000 (or $700,000 if only outstanding Letters of Credit
comprise the Obligations), the entire amount of all Advances
(including Letters of Credit) shall be subject to the Advance
Rate limitation set forth above. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1 may be repaid and reborrowed at any time prior to the
Revolving Maturity Date.
3. Section 2.2 entitled "Equipment Advances" is hereby amended
to read as follows:
(a) Through the Equipment Availability Date Bank will make
Equipment Advances not exceeding the Committed Equipment Line.
The Equipment Advances may only be used to purchase and may not
exceed 100% of the equipment invoice excluding taxes, shipping,
warranty charges, freight discounts and installation expense.
Software licenses, leasehold improvements, taxes, freight or
installation costs, used equipment, or other soft costs may
constitute up to 33% of aggregate Equipment Advances. Each
Equipment Advance must be for minimum of $50,000. There may be
not more than 6 Equipment Advances from December 1, 1998 through
the Equipment Availability Date.
(b) Interest accrues from the date of each Equipment Advance at
the rate in Section 2.4(a) and is payable monthly until the
Equipment Availability Date occurs. Each Equipment Advance made
prior to December 1, 1998 shall continue to amortize over 34
equal monthly principal payments plus interest and each Equipment
Advance made after December 1, 1998 shall be payable in 36 equal
monthly installments of principal plus accrued interest, on the
Payment Date for each month after the date of such Equipment
Advance. Equipment Advances when repaid may not be reborrowed.
2.
(c) The Equipment Facility shall terminate on the Equipment
Maturity Date, at which time all Equipment Obligations owing
under this Section 2.2 and all other amounts under this Agreement
shall be immediately due and payable.
(d) To obtain an Equipment Advance, Borrower must notify Bank
(the notice is irrevocable) by facsimile no later than 3:00 p.m.
Pacific time 1 Business Day before the day on which the Equipment
Advance is to be made. The notice must be signed by a Responsible
Officer or designee and include a copy of the invoice for the
Equipment being financed.
4. Effective as of the date of this Loan Modification Agreement,
Section 2.4(a) entitled "Interest Rate" is hereby amended to read
as follows:
i. Revolving Advances. Except as set forth in Section 2.4(b),
all Revolving Advances shall bear interest, on the average Daily
Balance thereof, at a rate equal to one half of one (0.500)
percentage point above the Prime Rate.
ii. Equipment Advances. Except as set forth in Section 2.4(b),
all Equipment Advances shall bear interest, on the average Daily
Balance thereof, at a rate equal to three quarters of one (0.750)
percentage point above the Prime Rate.
5. Section 6.8 entitled "Quick Ratio" is hereby amended to read as
follows:
Borrower shall maintain, as of the last day of each month, a
ratio of Quick Assets to Current Liabilities minus deferred
revenue of at least 1.50 to 1.00.
6. Section 6.9 entitled "Minimum Cash" is hereby deleted and
replaced with the following:
6.9 Tangible Net Worth. Borrower shall maintain, as of the
last day of each month, a Tangible Net Worth of at least
$7,500,000.
7. Section 6.10 entitled "Profitability" is hereby deleted and
replaced with the following:
6.10 Liquidity. Borrower shall maintain, as of the last day of
each month, unrestricted cash and equivalents plus net available
under the Committed Line (or if the Committed Line has terminated
or Borrower does not provide to Bank a Borrowing Base Certificate
or accounts receivable and accounts payable agings, then
unrestricted cash and equivalents plus 50% of Borrower's net
Accounts) equal to 2 times the aggregate outstanding Equipment
Advances. Notwithstanding the foregoing, at such times as
Borrower maintains 2 consecutive fiscal
3.
quarters of a Debt Service Coverage (as defined below) of 1.50 to
1.00, then the Liquidity covenant shall be replaced with the
following:
i. Debt Service Coverage. Borrower shall maintain, as of the
last day of each month, a ratio of net income plus depreciation,
amortization and interest expense, less unfunded capital
expenditures, divided by interest expense and scheduled principal
payments, all calculated on a rolling 3 month basis of not less
than 1.50 to 1.00; and
ii. Debt/Net Worth Ratio. A ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of
not more than 1.00 to 1.00.
8. Item "(b)" under Section 6.3 entitled "Financial Statements,
Reports, Certificates" is hereby amended to read as follows:
At such times as Borrower's Obligations under the Committed Line
exceed $500,000 (or $700,000 if only outstanding Letters of
Credit including drawn but unreimbursed Letters of Credit
comprise the Obligations under the Committed Line), within 20
days after Borrower's month-end, Borrower shall deliver to Bank a
Borrowing Base Certificate signed by a Responsible Officer,
together with aged listings of accounts receivable and accounts
payable. In addition, if the current Eligible Accounts do not
adequately support the outstanding Obligations under the
Committed Line, Borrower shall deliver to Bank, with the
Borrowing Base Certificate, a backlog report and an inventory
schedule.
B. Waiver of Borrower's Financial Covenant Default.
Bank hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the
Profitability covenant as of fiscal quarter ending September 30, 1998.
Bank's waiver of Borrower's compliance of this covenant shall apply
only to the foregoing period.
Bank's agreement to waive the above-described default (1) in no way
shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenant as of all other dates and
(2) shall not limit or impair the Bank's right to demand strict
performance of this covenant as of all other dates and (3) shall not
limit or impair the Bank's right to demand strict performance of all
other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of
Four Thousand Dollars ($4,000) (the "Loan Fee") plus all out-of-pocket expenses.
4.
10.5 Loan Modification
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement.
The terms of this paragraph apply not only to this Loan Modification Agreement,
but also to all subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrower's payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALTEON NETWORKS, INC. SILICON VALLEY BANK
By: /s/ ▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------- ----------------------------
Name: ▇▇▇▇▇ ▇▇▇▇ Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------- --------------------------
Title: Corporate Controller Title: Asst. Vice President
---------------------- -------------------------
5.