Exhibit 10.15
SECOND AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement is entered into as of
October 11, 2001 (the "Amendment"), by and between COMERICA BANK - CALIFORNIA
successor in interest to Imperial Bank ("Bank") and PHOTOWORKS, INC.
("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of December 20, 2000, as amended, including without limitation by that
certain First Amendment to Loan and Security Agreement dated as of July 23, 2001
(collectively, the "Agreement"). The parties desire to amend the Agreement in
accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Borrower may not request or receive any additional Credit Extensions.
2. In addition to all payments required under the Agreement (including
without limitation monthly payments of accrued interest), Borrower shall repay
the outstanding Advances in equal monthly payments of $50,000 on the fifteenth
(15th) calendar day of each month after the date hereof, beginning on October
15, 2001 and continuing on the same day of each month thereafter through the
Revolving Maturity Date, at which time all Advances, and all other amounts owing
from Borrower to Bank, shall be immediately due and payable.
3. Certain defined terms in Section 1.1 of the Agreement are hereby added
or amended to read as follows:
"Committed Revolving Line" means a credit extension of up to
One Million Five Hundred Thousand Dollars ($1,500,000).
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided,
that standards of eligibility may be fixed and revised from time to time
by Bank in Bank's reasonable judgment and upon notification thereof to
Borrower in accordance with the provisions hereof. Unless otherwise agreed
to by Bank, Eligible Accounts shall not include the following:
(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, twenty-five
percent (25%) 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;
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(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;
(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;
(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 as 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
believes, in its sole discretion, that there may be a basis for dispute
(but only to the extent of the amount subject to such dispute or claim),
or is subject to any Insolvency Proceeding, or becomes insolvent, or goes
out of business; and
(k) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to
which the account debtor does not have its principal place of business in
the United States and that (i) are supported by one or more letters of
credit in an amount and of a tenor, and issued by a financial institution,
acceptable to Bank, or (ii) that Bank approves on a case-by-case basis.
"Revolving Maturity Date" means April 11, 2002.
4. Section 2.3(a) of the Agreement is hereby amended in its entirety to
read as follows:
(a) Interest Rates. Except as set forth in Section 2.3(b), the
Advances shall bear interest, on the outstanding Daily Balance thereof, at a
rate equal to one and three quarters percent (1.75%) above the Prime Rate.
5. Section 6.8 of the Agreement is hereby amended in its entirety to read
as follows:
6.8 [Intentionally Omitted.]
6. Section 6.13 of the Agreement is hereby amended in its entirety to read
as follows:
6.13 [Intentionally Omitted.]
7. New Sections 6.14 and 6.15 are hereby added to the Agreement to read as
follows:
6.14 Liquidity. Borrower shall maintain a balance of unrestricted
cash and cash equivalents plus 75% of Eligible Accounts which is at least one
and one half (1.5) times the aggregate amount of all Indebtedness (including any
Contingent Obligations) owing from Borrower to Bank.
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6.15 Revenue. Borrower shall show revenue for each month which is
not less than the revenue projected for such month in the July 31 Board
Presentation entitled "2002 Worst Case" in the form presented to Bank on July
17, 2001.
8. Exhibit C to the Agreement is hereby amended and replaced in its
entirety by Exhibit C attached hereto.
9. Unless otherwise defined, all initially capitalized terms in this
Amendment shall be as defined in he Agreement. The Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. Except as expressly
set forth herein, the execution, delivery, and performance of this Amendment
shall not operate as a waiver of, or as an amendment of, any right, power, or
remedy of Bank under the Agreement, as in effect prior to the date hereof.
Borrower ratifies and reaffirms the continuing effectiveness of all promissory
notes, guaranties, security agreements, mortgages, deeds of trust, environmental
agreements, and all other instruments, documents and agreements entered into in
connection with the Agreement.
10. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of the date of
this Amendment, and that no Event of Default has occurred and is continuing.
11. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
12. As a condition to the effectiveness of this Amendment, Bank shall have
received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by Borrower;
(b) a warrant to purchase stock;
(c) three affirmations of guaranty;
(d) an affirmation of subordination;
(e) an amount equal to all Bank Expenses incurred through the
date of this Amendment, plus a $7,500 extension fee, which shall be
nonrefundable as of the date of this Amendment;
(f) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement; and
(g) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
PHOTOWORKS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
Title: Executive Vice President
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COMERICA BANK - CALIFORNIA
By: /s/ J.P. Michael
Title: First Vice President
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THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: PHOTOWORKS, INC., a Washington corporation
Number of Shares: 150,000
Class of Stock: Common
Initial Exercise Price: $0.20
Issue Date: October 11, 2001
Expiration Date: October 11, 2011 (Subject to Article 4.1)
THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and
for other good and valuable consideration, COMERICA BANK - CALIFORNIA or its
assignee ("Holder") is entitled to purchase the number of fully paid and
nonassessable shares of the class of securities (the "Shares") of the
corporation (the "Company") at the initial exercise price per Share (the
"Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of
this warrant, subject to the provisions and upon the terms and conditions set
forth in this warrant.
1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this warrant by
delivering this warrant and a duly executed Notice of Exercise in substantially
the form attached as Appendix 1 to the principal office of the Company. Unless
Holder is exercising the conversion right set forth in Section 1.2, Holder shall
also deliver to the Company a check for the aggregate Warrant Price for the
Shares being purchased.
1.2 Conversion Right. In lieu of exercising this warrant as
specified in Section 1.1, Holder may from time to time convert this warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.3.
1.3 Fair Market Value. If the Shares are traded regularly in a
public market, the fair market value of the Shares shall be the average closing
price of the Shares (or the closing price of the Company's stock into which the
Shares are convertible) reported for the five business days immediately before
Holder delivers its Notice of Exercise to the Company. If the Shares are not
regularly traded in a public market, the Board of Directors of the Company shall
determine fair market value in its reasonable good faith judgment. The foregoing
notwithstanding, if Holder advises the Board of Directors in writing that Holder
disagrees with such determination, then the Company and Holder shall promptly
agree upon a reputable investment banking firm to undertake such valuation. If
the valuation of such investment banking firm is greater by more than ten
percent (10%) than that determined by the Board of Directors, then all fees and
expenses of such investment banking firm shall be paid by the Company. In all
other circumstances, such fees and expenses shall be paid by Holder.
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1.4 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this warrant has not been fully
exercised or converted and has not expired, a new warrant representing the
Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this warrant,
the Company at its expense shall execute and deliver, in lieu of this warrant, a
new warrant of like tenor.
1.6 Repurchase on Sale, Merger, or Consolidation of the Company.
(a) "Acquisition." For the purpose of this warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets (including intellectual property) of the
Company, or any reorganization, consolidation, or merger of the Company where
the holders of the Company's securities before the transaction beneficially own
less than 50% of the outstanding voting securities of the surviving entity after
the transaction.
(b) Assumption of Warrant. If upon the closing of any
Acquisition the successor entity assumes the obligations of this warrant, then
this warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this warrant.
(c) Nonassumption. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this warrant and Holder has
not otherwise exercised this warrant in full, then Holder shall have the option
either to (a) deem this warrant to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the Acquisition on the
same terms as other holders of the same class of securities of the Company; or
(b) require the Company to purchase this warrant for cash upon the closing of
the Acquisition for an amount per Share equal to three (3) times the warrant
Price.
2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this warrant, Holder shall be entitled to receive, upon exercise
or conversion of this warrant, the number and kind of securities and property
that Holder would have received for the Shares if this warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
warrant for such new securities or other property. The new warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
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2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Intentionally Omitted.
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this warrant by the Company, but
shall at all times in good faith assist in carrying out all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this warrant is unchanged.
2.6 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents
and warrants to the Holder as follows:
a) All Shares which may be issued upon the exercise of the purchase
right represented by this warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; or (d) to merge or consolidate with or into any other corporation, or
sell, lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up, then, in connection with each such event, the
Company shall give Holder (1) at least 20 days prior written notice of the date
on which a record will be taken for such dividend, distribution, or subscription
rights (and specifying the date on which the holders of common stock will be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (a) and (b) above; and (2) in the case of the matters
referred to in (c) and (d) above at least 20 days prior written notice of the
date when the same will take place (and specifying the date on which the holders
of common stock will be entitled to exchange their common stock for securities
or other property deliverable upon the occurrence of such event).
3.3 Information Rights. So long as the Holder holds this warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all communiques to the shareholders of the Company, (b)
within ninety (90) days after the end of each fiscal year of the Company, the
annual audited financial statements of the Company certified by independent
public accountants of recognized standing and (c) within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
4. MISCELLANEOUS.
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4.1 Term. This warrant is exercisable in whole or in part, at any
time and from time to time on or before the Expiration Date set forth above. If
this warrant has not been exercised prior to its expiration, this warrant shall
be deemed to have been automatically exercised on the date of its expiration by
"cashless" conversion pursuant to Section 1.2.
4.2 Legends. This warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This warrant and
the Shares issuable upon exercise of this warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company). The Company
shall not require Holder to provide an opinion of counsel if the transfer is to
an affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this warrant or the Shares issuable upon
exercise of this warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this warrant
to the Company for reissuance to the transferee(s) (and Holder, if applicable);
provided, however, that Holder may transfer all or part of this warrant to its
affiliates, including, without limitation, its parent company, at any time
without notice to the Company, and such affiliate shall then be entitled to all
the rights of Holder under this warrant and any related agreements, and the
Company shall cooperate fully in ensuring that any stock issued upon exercise of
this warrant is issued in the name of the affiliate that exercises the warrant.
The terms and conditions of this warrant shall inure to the benefit of, and be
binding upon, the Company and the holders hereof and their respective permitted
successors and assigns. Unless the Company is filing financial information with
the SEC pursuant to the Securities Exchange Act of 1934, the Company shall have
the right to refuse to transfer any portion of this warrant to any person who
directly competes with the Company.
4.5 Notices. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time. All notices to the Holder shall be addressed as follows:
COMERICA BANK - CALIFORNIA
Attn: Controllers Department
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
with a copy to:
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COMERICA BANK - CALIFORNIA
Attn: Warrant Administrator
Special Markets Division
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
4.6 Waiver. This warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys' Fees. In the event of any dispute between the parties
concerning the terms and provisions of this warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This warrant shall be governed by and construed
in accordance with the laws of the State of Washington, without giving effect to
its principles regarding conflicts of law.
PHOTOWORKS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: Executive Vice President
By: /s/ J.P. Michael
Name: J. P. Michael
Title: First Vice President and Manager
Authorized signatories under Corporate Resolutions to Borrow or an authorized
signer(s) under a resolution covering warrants must sign the warrant.
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APPENDIX I
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ______________________ shares
of the ______________________ stock of PHOTOWORKS, INC. pursuant to the terms of
the attached warrant, and tenders herewith payment of the purchase price of such
shares in full.
1. The undersigned hereby elects to convert the attached warrant into
shares in the manner specified in the warrant. This conversion is exercised with
respect to _________________________ of the shares covered by the warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
COMERICA BANK - CALIFORNIA
Attn: Controllers Department
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Or Registered Assignee
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
COMERICA BANK - CALIFORNIA or Registered Assignee
__________________________________
(Signature)
__________________________________
(Date)
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