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EXHIBIT 10.4
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N2H2, INC.
LOAN AND SECURITY AGREEMENT
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This LOAN AND SECURITY AGREEMENT is entered into as of April 30, 1999,
by and between IMPERIAL BANK ("Bank") and N2H2, 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:
"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 under the
Revolving 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.
"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; reasonable Collateral audit fees; and Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents (including fees and expenses of appeal), incurred before, during and
after an Insolvency Proceeding, whether or not suit is brought.
"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" means an amount equal to eighty percent
(80%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California or Washington are
authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto.
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"Committed Revolving Line" means a credit extension of
up to Two Million Dollars ($2,000,000).
"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.
"Copyrights" means any and all copyright rights,
copyright applications, copyright registrations and like protections in each
work or authorship and derivative work thereof, whether published or unpublished
and whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Equipment
Advance, or any other extension of credit by Bank for the benefit of Borrower
hereunder.
"Current Assets" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current assets on
the consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"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 Advances made under this Agreement, including all Indebtedness that
is payable upon demand or within one year from the date of determination thereof
unless such Indebtedness is renewable or extendible at the option of Borrower or
any Subsidiary to a date more than one year from the date of determination, less
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, as of any date of
determination, a ratio of (a) the sum of (i) earnings after tax annualized for
the preceding three (3) months plus interest and non-cash (i.e., depreciation
and amortization) expenses, annualized for the preceding (3) three months to (b)
the sum of (i) current portion of long term debt and capitalized leases plus
(ii) interest expense, annualized for the preceding three months.
"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 as a
consequence of any Collateral audits done pursuant to Section 6.3 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:
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(a) Accounts that the account debtor has failed
to pay within ninety (90) days of invoice date; provided, however, that up to
$150,000 of Accounts that the account debtor has failed to pay within one
hundred twenty (120) days of invoice date will be allowed;
(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;
(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 of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(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;
(k) Accounts with respect to an account debtor
of whose Accounts the account debtor has failed to pay within one hundred twenty
(120) days of invoice date, except to the extent such Accounts do not exceed
$150,000 in the aggregate; and
(l) 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 (i) that 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; (ii) that do not exceed $200,000 of the Accounts of British Telecom; or
(iii) 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" has the meaning set forth in Section
2.1.4.
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"Equipment Line" means a credit extension of up to Two
Million Dollars ($2,000,000).
"Equipment Maturity Date" means April 29, 2003.
"Equity Event" means the sale or issuance by Borrower of
its equity securities or Subordinated Debt in which Borrower receives cash
proceeds of not less than Five Million Dollars ($5,000,000) from investors
acceptable to Bank.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in Article
8.
"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 Collateral" means:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software products
now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be
available to Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of
past, present and future infringement of any of the rights included above, with
the right, but not the obligation, to ▇▇▇ for and collect such damages for said
use or infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of
the Copyrights, Patents or Trademarks, and all license fees and royalties
arising from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of
any of the Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
"Interest Period" means for each LIBOR Rate Advance, a
period of approximately one, two, three or six months as Borrower may elect,
provided that the last day of an Interest Period for a LIBOR Rate Advance shall
be determined in accordance with the practices, of the LIBOR interbank market as
from time to time in effect, provided, further, in all cases such period shall
expire not later than the applicable Equipment Maturity Date.
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"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.
"IPO/Equity Infusion" means the first bona fide offering
by Borrower pursuant to a registration statement under the Securities Act of
1933 of the sale of its equity securities in which the net cash proceeds to
Borrower are not less than Ten Million Dollars ($10,000,000), or the sale or
issuance by Borrower of its equity securities or Subordinated Debt in which
Borrower receives cash proceeds of not less than Ten Million Dollars
($10,000,000) from investors acceptable to Bank.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"LIBOR Base Rate" means, for any Interest Period for a
LIBOR Rate Advance, the rate of interest per annum determined by Bank to be the
per annum rate of interest at which deposits in United States Dollars are
offered to Bank in the London interbank market in which Bank customarily
participates at 11:00 a.m. (local time in such interbank market) three (3)
Business Days before the first day of such Interest Period for a period
approximately equal to such Interest Period and in an amount approximately equal
to the amount of such Advance.
"LIBOR Rate" shall mean, for any Interest Period for a
LIBOR Rate Advance, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) equal to (i) the LIBOR Base Rate for such Interest Period
divided by (ii) 1 minus the Reserve Requirement for such Interest Period.
"LIBOR Rate Advances" means any Advances made or a
portion thereof on which interest is payable based on the LIBOR Rate in
accordance with the terms hereof.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other 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 all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
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"Patents" means all patents, patent applications and
like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"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 instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date
and disclosed in the Schedule;
(c) Indebtedness secured by a lien described in
clause (c) of the defined term "Permitted Liens," provided (i) such Indebtedness
does not exceed the lesser of the cost or fair market value of the equipment
financed with such Indebtedness and (ii) such Indebtedness shall not exceed
$500,000 for the purchase of equipment acquired by Borrower that is not located
at the Borrower's customers' locations;
(d) Subordinated Debt;
(e) Indebtedness at any time outstanding in an
amount not to exceed $100,000; and
(f) Indebtedness to trade creditors incurred in
the ordinary course of business.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having rating of at least A-2 or P-2 from either
Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank and (iv) Bank's money market accounts.
"Permitted Liens" means the following:
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(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same have no priority over any of
Bank's security interests;
(c) Liens (i) upon or in any equipment acquired
or held by Borrower or any of its Subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount
thereof shall be determined, the unrestricted cash and cash-equivalents,
accounts receivable and investments with maturities not to exceed 90 days, of
Borrower determined in accordance with GAAP.
"Reserve Requirement" means, for any Interest Period,
the average maximum rate at which reserves (including any marginal, supplemental
or emergency reserves) are required to be maintained during such Interest Period
under Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by Bank by reason of any regulatory change
against (i) any category of liabilities which includes deposits by reference to
which the LIBOR Rate is to be determined as provided in the definition of "LIBOR
Base Rate" or (ii) any category of extensions of credit or other assets which
include Advances.
"Responsible Officer" means each of the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial Officer and the
Controller of Borrower.
"Revolving Maturity Date" means April 29, 2000.
"Revolving Facility" means the facility under which
Borrower may request Bank to issue Advances, as specified in Section 2.1.1
hereof.
"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 reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).
"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, is owned by Borrower, either directly or through an
Affiliate.
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"Tangible Net Worth" means at any date as of which the
amount thereof shall be determined, the sum of the capital stock and additional
paid-in capital plus retained earnings (or minus accumulated deficit) of
Borrower and its Subsidiaries minus intangible assets, plus Subordinated Debt,
on a consolidated basis determined in accordance with GAAP.
"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.
"Trademarks" means any trademark and servicemark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of Borrower
connected with and symbolized by such trademarks.
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 Credit Extensions. Borrower promises to pay to the order of
Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower hereunder.
Borrower shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions
of this Agreement, Borrower may request Advances in an aggregate outstanding
amount not to exceed the lesser of (i) One Million Three Hundred Thousand
Dollars ($1,300,000) or (ii) the Borrowing Base; provided, however, that after
an Equity Event, Borrower may request Advances in an aggregate outstanding
amount not to exceed the lesser of (i) One Million Five Hundred Thousand Dollars
($1,500,000) or (ii) the Borrowing Base; provided, further, that after an
IPO/Equity Infusion, Borrower may request Advances in an aggregate outstanding
amount not to exceed the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base. Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1.1 may be repaid and reborrowed at any time
prior to the Revolving Maturity Date, at which time all Advances under this
Section 2.1.1 shall be immediately due and payable. Borrower may prepay any
Advances without penalty or premium.
(b) Whenever Borrower desires an Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Pacific time, on the Business Day that the Advance is to be made. Each
such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B-1 hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer or a designee thereof, and Borrower shall indemnify and
hold Bank harmless for any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of Advances made under this Section 2.1.1
to Borrower's deposit account.
2.1.2 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) Committed
Line or (ii) the Borrowing Base minus the outstanding Advances and the face
amount of outstanding Letters of Credit. Each such Letter of Credit shall have
an expiry date no later than the Revolving Maturity Date. All such Letters of
Credit shall be, in form and substance, acceptable to Bank in its sole
discretion 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 two percent (2.00%) 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
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respect of a Letter of Credit shall, when paid, constitute an Advance under this
Agreement. Aggregate outstanding Letters of Credit shall at no time exceed Three
Hundred Twenty Thousand Dollars ($320,000).
(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, other than losses resulting from the Bank's negligence.
2.1.3 Credit Card Sublimit. Subject to the terms and
conditions of this Agreement, Borrower may request Advances in an aggregate
amount not to exceed Fifty Thousand Dollars ($50,000) to be used to secure debt
outstanding under credit cards issued by Bank to Borrower and/or its employees,
provided that the sum of the aggregate outstanding Advances does not exceed the
lesser of (i) the Committed Revolving Line or (ii) the Borrowing Base minus the
outstanding Advances and the face amount of outstanding Letters of Credit. The
terms and conditions (including repayment) of such credit cards shall be the
equivalent of that offered by Bank to its other customers.
2.1.4 Equipment Advances.
(a) Subject to and upon the terms and conditions
of this Agreement, at any time from the date hereof through the Revolving
Maturity Date, Bank agrees to make advances (each an "Equipment Advance" and,
collectively, the "Equipment Advances") to Borrower in an aggregate outstanding
amount not to exceed $500,000; provided, however, that after an Equity Event,
Borrower may request Equipment Advances in an aggregate outstanding amount not
to exceed $750,000; provided, further, that after an IPO/Equity Infusion,
Borrower may request Equipment Advances in an aggregate outstanding amount not
to exceed the Equipment Line. Each Equipment Advance shall not exceed one
hundred percent (100%) of the invoice amount of equipment, software (which
Borrower shall, in any case, have purchased within 90 days of the date of the
corresponding Equipment Advance), excluding taxes, shipping, warranty charges,
freight discounts and installation expense; provided, however, that the initial
Equipment Advance shall not exceed eighty (80%) of the invoice amount of
equipment, software (which Borrower has purchased within 90 days prior to the
Closing Date) excluding taxes, shipping, warranty charges, freight discounts and
installation expense. Up to Four Hundred Thousand Dollars ($400,000) of the
Equipment Line may be used by Borrower for software purchases.
(b) Interest shall accrue from the date of each
Equipment Advance at the rate specified in Section 2.3(a), and shall be payable
monthly on the 29th day of each month through April 29, 2000. Any Equipment
Advances that are outstanding on April 29, 2000 shall be payable in thirty-six
(36) equal monthly installments of principal, plus all accrued interest,
beginning on May 29, 2000, and continuing on the same day of each month
thereafter through the Equipment Maturity Date, at which time all amounts due
under this Section 2.1.4 and any other amounts due under this Agreement shall be
immediately due and payable. Equipment Advances, once repaid, may not be
reborrowed. Borrower may prepay any Equipment Advances without penalty or
premium.
(c) When Borrower desires to obtain an Equipment
Advance, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time one
(1) Business Day before the day on which the Equipment Advance is to be made.
Such notice shall be substantially in the form of Exhibit B-1. The notice shall
be signed by a Responsible Officer or its designee and include a copy of the
invoice for any Equipment to be financed. Notwithstanding the foregoing, after
an IPO/Equity Infusion, Borrower shall request Equipment Advances in accordance
with Section 2.5 below.
2.2 Overadvances. If any Advances hereunder exceed the lesser of
the Borrowing Base or the Committed Revolving Line, Borrower shall immediately
pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. 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 percent (1.0%) above the Prime Rate; provided,
however, that
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after an IPO/Equity Infusion, Advances shall bear interest, on the outstanding
daily balance thereof, at a rate equal to one-half of one percent (0.5%) above
the Prime Rate.
(ii) Equipment Advances. Except as set forth
in Section 2.3(b), the Equipment Advances shall bear interest, on the
outstanding daily balance thereof, at a rate equal to one and one-half percent
(1.5%) above the Prime Rate; provided, however, that after an IPO/Equity
Infusion, Advances shall bear interest, on the outstanding daily balance
thereof, as provided in Section 2.5 below.
(b) Late Fee; Default Rate. If any payment is
not made within ten (10) days after the date such payment is due, Borrower shall
pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount
of such unpaid amount or (ii) the maximum amount permitted to be charged under
applicable law. 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 twenty-ninth (29th) calendar day 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 Revolving Line, in which case those amounts shall thereafter
accrue interest at the rate then applicable hereunder. Any interest not paid
when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable hereunder.
Bank shall deliver to Borrower statements of account in the ordinary course of
business reflecting charges made hereunder.
(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 the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of
Default, 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 wire
transfer or payment received by Bank after 12:00 noon Pacific time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Libor/Prime Rate Advances. After an IPO/Equity Infusion,
whenever Borrower desires an Equipment Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 11:00 a.m. Pacific time, on
the Business Day that a Prime Advance is to be made, and noon Pacific time on
the Business Day that is three (3) Business Days prior to the Business Day on
which a LIBOR Rate Advance is made. Each such notification shall be promptly
confirmed by a Payment/Advance Form in substantially the form of Exhibit B-2
hereto. Bank is authorized to make Advances under this Agreement, based upon
instructions received from a Responsible Officer, or a designee of a Responsible
Officer designated in writing and signed by such Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer or a designee thereof, and Borrower shall indemnify and
hold Bank harmless for any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of Advances made under this Section 2.1 to
a Borrower's deposit account, as specified by such Borrower.
Each such notice shall specify:
(i) the date such Advance is to be made,
which shall be a Business Day;
(ii) the amount of such Advance;
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(iii) whether such Advance is to be a Prime
Rate Advance or a LIBOR Rate Advance; and
(iv) if the Advance is to be a LIBOR Rate
Advance, the Interest Period for such Advance;
Each written request for an Advance, and each
confirmation of a telephone request for such an Advance, shall be in
substantially the form of Exhibit B-2 hereto executed by Borrower.
2.5.1 Prime Rate Advances. Each Prime Rate Advance shall
be in an amount of not less than Twenty-Five Thousand Dollars ($25,000). The
outstanding principal balance of each Prime Rate Advance shall bear interest
until principal is due (computed daily on the basis of a 360 day year and actual
days elapsed), at a rate per annum equal to one percent (1.0%) above the Prime
Rate. Prime Rate Advances under the Equipment Line shall be payable as provided
in Section 2.1.4(b).
2.5.2 LIBOR Rate Advances. Each LIBOR Rate Advance shall
be in an amount of not less than Five Hundred Thousand Dollars ($500,000). The
outstanding principal balance of each LIBOR Rate Advance shall bear interest
until principal is due (computed daily on the basis of a 360 day year and actual
days elapsed) at a rate per annum equal to the LIBOR Rate plus 400 basis points
for such LIBOR Rate Advance. The entire outstanding principal amount of each
LIBOR Rate Advance shall be due and payable on the earlier of (i) the last day
of the LIBOR Rate Interest Period for such LIBOR Rate Advance, and (ii)
Equipment Maturity Date.
2.5.3 Prepayment of the Advances. Borrower may at any
time prepay any Prime Rate Advance or any LIBOR Rate Advance, in full or in
part. Each partial prepayment for a LIBOR Rate Advance shall be in an amount not
less than Twenty-Five Thousand Dollars ($25,000). Each prepayment shall be made
upon the irrevocable written or telephone notice of Borrower received by Bank
not later than 10:00 a.m. California time on the date of the prepayment of a
Prime Rate Advance, and not less than three (3) Business Days prior to the date
of the prepayment of a LIBOR Rate Advance. The notice of prepayment shall
specify the date of the prepayment, the amount of the prepayment, and the
Advance or Advances prepaid. Each prepayment of a LIBOR Rate Advance shall be
accompanied by the payment of accrued interest on the amount prepaid and any
amount required by Section 2.8.
2.6 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee.
(i) Committed Revolving Line. On the Closing
Date, a Facility Fee equal to $4,875, which shall be non-refundable; provided,
however, that upon the occurrence of an Equity Event, Borrower shall pay to Bank
an additional Facility Fee equal to $500, which shall be non-refundable;
provided, further, that upon the occurrence of an IPO/Equity Infusion, Borrower
shall pay to Bank an additional Facility Fee equal to $2,625.
(ii) Equipment Line. On the Closing Date, a
Facility Fee equal to $2,500, which shall be non-refundable; provided, however,
that upon the occurrence of an Equity Event, Borrower shall pay to Bank an
additional Facility Fee equal to $500, which shall be non-refundable; provided,
further, that upon the occurrence of an IPO/Equity Infusion, Borrower shall pay
to Bank an additional Facility Fee equal to $7,500.
(b) Bank Expenses. On the Closing Date, all Bank
Expenses incurred through the Closing Date, including reasonable attorneys' fees
and expenses and, after the Closing Date, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.7 Conversion/Continuation of Advances.
2.7.1 A Borrower may from time to time submit in writing
a request that Prime Rate Advances be converted to LIBOR Rate Advances or that
any existing LIBOR Rate Advances continue for an additional Interest Period.
Such request shall specify the amount of the Prime Rate Advances which will
constitute LIBOR Rate Advances (subject to the limits set forth below) and the
Interest Period to be applicable to such LIBOR Rate Advances. Each written
request for a conversion to a
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LIBOR Rate Advance or a continuation of a LIBOR Rate Advance shall be
substantially in the form of a Libor Rate Conversion/Continuation Certificate as
set forth on Exhibit B-3, which shall be duly executed by a Responsible Officer.
Subject to the terms and conditions contained herein, three (3) Business Days
after Bank's receipt of such a request from Borrower, such Prime Rate Advances
shall be converted to LIBOR Rate Advances or such LIBOR Rate Advances shall
continue, as the case may be provided that:
(i) no Event of Default or event which with
notice or passage of time or both would constitute an Event of Default exists;
(ii) no party hereto shall have sent any
notice of termination of the Agreement;
(iii) Borrower shall have complied with such
customary procedures as Bank has established from time to time for Borrower's
requests for LIBOR Rate Advances;
(iv) the amount of a LIBOR Rate Advance
shall be $500,000 or such greater amount which is an integral multiple of
$50,000; and
(v) Bank shall have determined that the
Interest Period or LIBOR Rate is available to Bank as of the date of the request
for such LIBOR Rate Advance.
Any request by Borrower to convert Prime Rate Advances to LIBOR Rate
Advances or continue any existing LIBOR Rate Advances shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Bank shall not be
required to purchase United States Dollar deposits in the London interbank
market or other applicable LIBOR Rate market to fund any LIBOR Rate Advances,
but the provisions hereof shall be deemed to apply as if Bank had purchased such
deposits to fund the LIBOR Rate Advances.
2.7.2 Any LIBOR Rate Advances shall automatically
convert to Prime Rate Advances upon the last day of the applicable Interest
Period, unless Bank has received and approved a complete and proper request to
continue such LIBOR Rate Advance at least three (3) Business Days prior to such
last day in accordance with the terms hereof. Any LIBOR Rate Advances shall, at
Bank's option, convert to Prime Rate Advances in the event that an Event of
Default shall exist. Borrower shall pay to Bank, upon demand by Bank any amounts
required to compensate Bank for any loss (including loss of anticipated
profits), cost or expense incurred by such person, as a result of the conversion
of LIBOR Rate Advances to Prime Rate Advances pursuant to any of the foregoing.
2.8 Additional Requirements/Provisions Regarding LIBOR Rate
Advances.
2.8.1 If for any reason (including voluntary or
mandatory prepayment or acceleration, other than under section (2.8.5), Bank
receives all or part of the principal amount of a LIBOR Rate Advance prior to
the last day of the Interest Period for such LIBOR Rate Advance, Borrower shall
on demand by Bank, pay Bank the amount (if any) by which (i) the additional
interest which would have been payable on the amount so received had it not been
received until the last day of such Interest Period or term exceeds (ii) the
interest which would have been recoverable by Bank by placing the amount so
received on deposit in the certificate of deposit markets or the offshore
currency interbank markets or United States Treasury investment products, as the
case may be, for a period starting on the date on which it was so received and
ending on the last day of such Interest Period or term at the interest rate
determined by Bank. Bank's determination as to such amount shall be presumptive
evidence of such additional costs and binding for all purposes if made
reasonably and in good faith.
2.8.2 Borrower shall pay to Bank, upon demand by Bank,
from time to time such amounts as Bank may reasonably determine to be necessary
to compensate it for any costs incurred by Bank that Bank determines are
attributable to its making or maintaining of any amount receivable by Bank
hereunder in respect of any Advances relating thereto (such increases in costs
and reductions in amounts receivable being herein called "Additional Costs"), in
each case resulting from any regulatory change that:
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(i) changes the basis of taxation of any
amounts payable to Bank under this Agreement in respect of any Advances (other
than changes which affect taxes measured by or imposed on the overall net income
of Bank by the jurisdiction in which Bank has its principal office); or
(ii) imposes or modifies any reserve,
special deposit or similar requirements relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of Bank (including
any Advances or any deposits referred to in the definition of "LIBOR Base
Rate"); or
(iii) imposes any other material condition
affecting this Agreement (or any of such extensions of credit or liabilities).
Bank will notify Borrower of any event occurring after the date of the Agreement
which will entitle Bank to compensation pursuant to this section as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation. Bank will furnish Borrower with a statement setting forth the
basis and amount of each request by Bank for compensation under this Section
2.8. Determinations and allocations by Bank for purposes of this Section 2.8 of
the effect of any regulatory change on its costs of maintaining its obligations
to make Advances or of making or maintaining Advances or on amounts receivable
by it in respect of Advances, and of the additional amounts required to
compensate Bank in respect of any Additional Costs, shall be conclusive absent
manifest error.
2.8.3 Borrower shall pay to Bank, upon the request of
Bank, such amount or amounts as shall be sufficient (in the sole good faith
opinion of Bank) to compensate it for any reasonable loss, costs or expense
incurred by it as a result of any failure by Borrower to borrow a LIBOR Rate
Advance on the date for such borrowing specified in the relevant notice of
borrowing hereunder.
2.8.4 If Bank shall determine that the adoption or
implementation of any applicable law, rule, regulation or treaty regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Bank (or its applicable lending office) with any respect or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on capital of Bank or any person or entity
controlling Bank (a "Parent") as a consequence of its obligations hereunder to a
level below that which Bank (or its Parent) could have achieved but for such
adoption, change or compliance (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by Bank to be material, then
from time to time, within 15 days after demand by Bank, Borrower shall pay to
Bank such additional amount or amounts as will compensate Bank for such
reduction. A statement of Bank claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder shall
be presumptive evidence of such additional costs and binding for all purposes if
made reasonably and in good faith.
2.8.5 If at any time Bank, in its sole and absolute
discretion, determines that: (i) the amount of the LIBOR Rate Advances for
periods equal to the corresponding Interest Periods or any other period are not
available to Bank in the offshore currency interbank markets, or (ii) the LIBOR
Rate does not accurately reflect the cost to Bank of lending the LIBOR Rate
Advance, then Bank shall promptly give notice thereof to Borrower, and upon the
giving of such notice Bank's obligation to make the LIBOR Rate Advances shall
terminate, unless Bank and Borrower agree in writing to a different interest
rate applicable to LIBOR Rate Advances. If it shall become unlawful for Bank to
continue to fund or maintain any Advances, or to perform its obligations
hereunder, upon demand by Bank, Borrower shall prepay the Advances in full with
accrued interest thereon and all other amounts payable by Borrower hereunder.
2.9 Term. This Agreement shall become effective on the Closing
Date and, subject to Section 12.7, shall continue in full force and effect for a
term ending on the Equipment Maturity Date. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Credit Extensions under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.
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3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower
with respect to incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a financing statement (Form UCC-1);
(d) an intellectual property security agreement;
(e) a subordination agreement from each
subordinating creditor;
(f) an audit of the Collateral, the results of
which shall be satisfactory to Bank; and
(g) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The
obligation of Bank to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the
Payment/Advance Form as provided in Section 2.1; and
(b) the representations and warranties contained
in Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Credit
Extension (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). The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrower on the date of such
Credit Extension as to the accuracy of the facts referred to in this Section
3.2(b).
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours but no more than once a year
(unless an Event of Default has occurred and is continuing), 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.
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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 under the laws of its state of
incorporation and qualified and licensed to do business in any state in which
the conduct of its business or its ownership of property requires that it be so
qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. 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.
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, except
for Inventory for which adequate reserves have been made.
5.6 Intellectual Property Collateral. Borrower is the sole owner
of the Intellectual Property Collateral, except for non-exclusive licenses
granted by Borrower to its customers in the ordinary course of business. Each of
the Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party.
5.7 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.
5.8 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
have a Material Adverse Effect or a material adverse effect on Borrower's
interest or Bank's security interest in the Collateral.
5.9 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
are 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.
5.10 Solvency, Payment of Debts. Borrower is solvent and able to
pay its debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary have
met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of the important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act.
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Borrower has not violated any statutes, laws, ordinances or rules applicable to
it, violation of which could have a Material Adverse Effect.
5.12 Environmental Condition. Except as disclosed in the
Schedule, 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.
5.13 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.
5.14 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted, the failure to obtain which could have a Material Adverse Effect.
5.16 Year 2000. Borrower and its Subsidiaries have reviewed the
areas within their operations and business which could be adversely affected by,
and have developed or are developing a program to address on a timely basis, the
Year 2000 Problem and have made related appropriate inquiry of material
suppliers and vendors, and based on such review and program, the Year 2000
Problem will not have a Material Adverse Effect upon its financial condition,
operations or business as now conducted. "Year 2000 Problem" means the
possibility that any computer applications or equipment used by Borrower may be
unable to recognize and properly perform date sensitive functions involving
certain dates prior to and any dates on or after December 31, 1999.
5.17 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could have a Material Adverse Effect. Borrower shall maintain, and shall cause
each of its Subsidiaries to maintain in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each calendar month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during such period, in a form acceptable to Bank and certified by a
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Responsible Officer; (b) 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; (c)
if applicable, within five (5) days of filing with the Securities and Exchange
Commission, 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; (d) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more; (e) within thirty (30) days after
Borrrower's fiscal year end, operating budgets, annual budgets, and forecasts of
Borrower; and (f) other financial information as Bank may reasonably request
from time to time generally prepared by Borrower in the ordinary course of
business.
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts and appraise Collateral at Borrower's expense, provided that such
audits will be conducted no more often than every twelve (12) 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 except for
Inventory for which adequate reserves have been made. 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.
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. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
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6.7 Year 2000 Compliance. Borrower shall perform all acts
reasonably necessary to ensure that (a) Borrower and any business in which
Borrower holds a substantial interest, and (b) all customers, suppliers and
vendors that are material to Borrower's business, become Year 2000 Compliant in
a timely manner. Such acts shall include, without limitation, performing a
comprehensive review and assessment of all Borrower's systems and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and testing
of such systems. As used in this paragraph, "Year 2000 Compliant" shall mean, in
regard to any entity, that all software, hardware, firmware, equipment, goods or
systems utilized by or material to the business operations or financial
condition of such entity, will properly perform date sensitive functions before,
during and after the year 2000. Borrower shall immediately upon request, provide
to Bank such certifications or other evidence of Borrower's compliance with the
terms of this paragraph as Bank may from time to time require.
6.8 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.9 Adjusted Quick Ratio. Borrower shall maintain, as of the
last day of each calendar month, a ratio of Quick Assets to Current Liabilities
of at least 1.25 to 1.00. Upon the occurrence of and subsequent to an IPO/Equity
Infusion, Borrower shall maintain, as of the last day of each calendar month, a
ratio of Quick Assets to Current Liabilities of at least 1.50 to 1.00.
6.10 Tangible Net Worth. Upon the occurrence of and subsequent
to an IPO/Equity Infusion, Borrower shall maintain, as of the last day of each
calendar month, a Tangible Net Worth of not less than Seven Million Dollars
($7,000,000).
6.11 Minimum Liquidity. Borrower shall maintain a minimum
Liquidity that is one and one-half (1.5) times the outstanding balance of
Equipment Advances. Upon the occurrence of and subsequent to an IPO/Equity
Infusion, Borrower shall maintain a minimum Liquidity that is one and
three-quarters (1.75) times the outstanding balance of Equipment Advances. For
the purposes of this Section, "Liquidity" shall mean cash and cash equivalents
of Borrower plus eighty percent (80%) of Eligible Accounts, minus the
outstanding Advances under the Committed Revolving Line. Notwithstanding the
foregoing, after Borrower has maintained a Debt Service Coverage of at least
1.50 to 1.00 for six consecutive months, Borrower thereafter shall maintain such
Debt Service Coverage of at least 1.50 to 1.00 as of the last day of each month
in lieu of the liquidity covenant.
6.12 IPO/Equity Infusion. Borrower shall close an IPO/Equity
Infusion no later than September 30, 1999.
6.13 Profitability/Losses. Borrower may suffer quarterly losses
not to exceed the following amounts for the following periods: $1,850,000 for
the fiscal quarter ending March 31, 1999; $1,250,000 for the fiscal quarter
ending June 30, 1999; $500,000 for the fiscal quarter ending September 30, 1999;
and $2,700,000 for the fiscal quarter ending December 31, 1999. Thereafter,
Borrower shall have a net profit of at least $1.00 as of the end of each fiscal
quarter. All net loss covenants above shall exclude (i) non-recurring charges
related to merger and acquisition activities, including fees and expenses
associated with such activities, (ii) fees and expenses associated with an
IPO/Equity Infusion, and (iii) any charges relating to "cheap stock" issues with
the Securities and Exchange Commission. Capitalized software development costs
shall be included in the quarterly loss calculation above.
6.14 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be
registered (to the extent they are registerable) on an expedited basis (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within forty-five (45) days of the date of this Agreement. Borrower
shall register or cause to be registered (to the extent they are registerable)
with the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, and notify Bank of those additional
intellectual property rights developed or acquired by Borrower from time to time
in connection with any product prior to the sale or licensing of such product to
any third party, including without limitation major revisions or additions to
the intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such
additional instruments and documents from time to time as Bank shall reasonably
request to perfect Bank's security interest in the Intellectual Property
Collateral.
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(c) Borrower shall (i) protect, defend and
maintain the validity and enforceability of the Trademarks, Patents and
Copyrights, (ii) use its best efforts to detect infringements of the Trademarks,
Patents and Copyrights and promptly advise Bank in writing of material
infringements detected and (iii) not allow any material Trademarks, Patents or
Copyrights to be abandoned, forfeited or dedicated to the public without the
written consent of Bank, which shall not be unreasonably withheld.
(d) Bank may audit Borrower's Intellectual
Property Collateral to confirm compliance with this Section 6.15, provided such
audit may not occur more often than once per year, unless an Event of Default
has occurred and is continuing. Bank shall have the right, but not the
obligation, to take, at Borrower's sole expense, any actions that Borrower is
required under this Section 6.15 to take but which Borrower fails to take, after
fifteen (15) days' notice to Borrower. Borrower shall reimburse and indemnify
Bank for all reasonable costs and reasonable expenses incurred in the reasonable
exercise of its rights under this Section 6.15.
6.15 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
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 Credit
Extensions, Borrower will not do any of the following without the prior written
consent of Bank:
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 of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of surplus, worn-out or obsolete Equipment.
7.2 Change in Business. 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). Borrower will not, without thirty (30) days 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, except for
(i) non-cash transactions not resulting in a change in control of Borrower or in
which the Borrower is the surviving entity, (ii) transactions in which Borrower
transfers not more than $2,000,000 in cash and an IPO/Equity Infusion has
occurred, and (iii) transactions in which Borrower transfers not more than
$5,000,000 in cash and Borrower has made a first bona fide offering pursuant to
a registration statement under the Securities Act of 1933 of the sale of its
equity securities in which the net cash proceeds to Borrower are not less than
Fifteen Million Dollars ($15,000,000).
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, except that Borrower may (i) repurchase the stock of
former employees pursuant to stock repurchase agreements as long as an Event of
Default does not exist prior to such repurchase or would not exist after giving
effect to such repurchase and (ii) prior to an IPO/Equity Infusion, pay cash
dividends relating to federal and state income taxes associated with an S
corporation incurred by its shareholders as a result of Borrower's operations.
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, or as otherwise permitted under Section 7.3.
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7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman,
or similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory; provided, however, that Borrower may deposit software
code in escrow for customers in the ordinary course of business. Except for
Inventory sold in the ordinary course of business and except for such other
locations as Bank may approve in writing, Borrower shall keep the Inventory only
at the 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" or be 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 Credit Extension 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, when due, any of
the Obligations;
8.2 Covenant Default. If Borrower fails to perform any
obligation under Article 6 or violates any of the covenants contained in Article
7 of this Agreement, or 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 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 Credit Extensions 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 ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
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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 Credit Extensions 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 have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account
of Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least One Hundred
Thousand Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate 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.
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) Make such payments and do such acts as Bank
considers necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and
to make the Collateral available to Bank as Bank may designate. Borrower
authorizes Bank to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to 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 order to
exercise any of Bank's rights or remedies provided herein, at law, in equity, or
otherwise;
(e) Set off and apply to the Obligations any and
all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at
any time owing to or for the credit or the account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a 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 Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
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(g) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's premises)
as Bank determines is commercially reasonable, and apply 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 Collateral 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) dispose of any Collateral; (e) make, settle, and adjust all
claims under and decisions with respect to Borrower's policies of insurance; and
(f) settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which Bank determines to be
reasonable; provided Bank may exercise such power of attorney to sign the name
of Borrower on any of the documents described in Section 4.2 regardless of
whether an Event of Default has occurred. The appointment of Bank as Borrower's
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
9.3 Accounts Collection. At any time during the term of this
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds and verify the amount of such Account. Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and 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 after reasonable notice to Borrower: (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
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies
with reasonable banking practices, Bank shall not in any way or manner be liable
or responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any cause; (c)
any diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
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.
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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: N2H2, INC.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇ ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank: Imperial Bank
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Corporate Banking Center
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Imperial 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.
This Agreement 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 nonexclusive
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 prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall 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 this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a
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result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's 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 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.
13. JUDICIAL REFERENCE.
(a) Other than (i) nonjudicial foreclosure and
all matters in connection therewith regarding security interests in real or
personal property; or (ii) the appointment of a receiver, or the exercise of
other provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties arising
out of or relating to this Agreement, which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "Claim Date" (defined as
the date on which a party subject to this Agreement gives written notice to all
other parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure, or their successor
section ("CCP"), which shall constitute the exclusive remedy for the settlement
of any controversy, dispute or claim concerning this Agreement, including
whether such controversy, dispute or claim is subject to the reference
proceeding and except as set forth above, the parties waive their rights to
initiate any legal proceedings against each other in any court or jurisdiction
other than the Superior Court of Santa ▇▇▇▇▇ County (the "Court"). The referee
shall be a retired Judge of the Court selected by mutual agreement of the
parties, and if they cannot so agree within forty-five (45) days after the Claim
Date, the referee shall be promptly selected by the Presiding Judge of the Court
(or his representative). The referee shall be appointed to sit as a temporary
judge, with all of the powers for a temporary judge, as authorized by law, and
upon selection should take and subscribe to the oath of office as provided for
in Rule 244 of the California Rules of the Court (or any subsequently enacted
Rule). Each party shall have one peremptory challenge pursuant to CCP Section
170.6. The referee shall (a) be requested to set the matter for hearing within
sixty (60) days after the date of selection of the referee and (b) try any and
all issues of law or fact and report a statement of decision upon them, if
possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final, binding and conclusive and judgment shall be entered
pursuant to CCP Section 644 in any court in the State of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents which cannot be resolved by the parties
shall be submitted to the referee as provided herein. The Superior Court is
empowered to issue temporary and/or provisions remedies, as appropriate.
(b) Except as expressly set forth in this
Agreement, the referee shall determine the manner in which the reference
proceeding is conducted including the time and place of all hearings, the order
of presentation of evidence, and all other questions that arise with respect to
the course of the reference proceeding. All proceedings and hearings conducted
before the referee, except for trial, shall be conducted without a court
reporter except that when any party so requests, a court reporter will be
24
26
used at any hearing conducted before the referee. The party making such a
request shall have the obligation to arrange for and pay for the court reporter.
The costs of the court reporter at the trial shall be borne equally by the
parties.
(c) The referee shall be required to determine
all issues in accordance with existing case law and the statutory laws of the
State of California. The rules of evidence applicable to proceedings at law in
the State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable orders
that will be binding upon the parties. The referee shall issue a single judgment
at the close of the reference proceeding which shall dispose of all of the
claims of the parties that are the subject of the reference. The parties hereto
expressly reserve the right to contest or appeal from the final judgment or any
appealable order or appealable judgment entered by the referee. The parties
hereto expressly reserve the right to findings of fact, conclusions of laws, a
written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a reference
proceeding under this provisions.
(d) In the event that the enabling legislation
which provides for appointment of a referee is repealed (and no successor
statute is enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be resolved and
determined by arbitration. The arbitration will be conducted by a retired judge
of the Court, in accordance with the California Arbitration Act, Section 1280
through Section 1294.2 of the CCP as amended from time to time. The limitations
with respect to discovery as set forth hereinabove shall apply to any such
arbitration proceeding.
25
27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
N2H2, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Title: CFO
------------------------------
IMPERIAL BANK
By: /s/ JP Michael
---------------------------------
Title: VP
------------------------------
26
28
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(i) all accounts receivable, accounts,
chattel paper, contract rights (including, without limitation, royalty
agreements, license agreements and distribution agreements), documents,
instruments, money, deposit accounts and general intangibles, including, without
limitation, returns, repossessions, books and records relating thereto, and
equipment containing said books and records, all investment property, including
securities and securities entitlements;
(ii) all software, computer source codes and
other computer programs (collectively, the "Software Products"), and all common
law and statutory copyrights and copyright registrations, applications for
registration, now existing or hereafter arising, United States of America and
foreign, obtained or to be obtained on or in connection with the Software
Products, or any parts thereof or any underlying or component elements of the
Software Products together with the right to copyright and all rights to renew
or extend such copyrights and the right (but not the obligation) of Bank (herein
referred to as "Bank" or "Secured Party") to ▇▇▇ in its own name and/or the name
of the Debtor for past, present and future infringements of copyright;
(iii) all goods, including, without
limitation, equipment and inventory (including, without limitation, all export
inventory);
(iv) all guarantees and other security
therefor;
(v) all trademarks, service marks, trade
names and service names and the goodwill associated therewith;
(vi) (a) all patents and patent applications
filed in the United States Patent and Trademark Office or any similar office of
any foreign jurisdiction, and interests under patent license agreements,
including, without limitation, the inventions and improvements described and
claimed therein, (b) licenses pertaining to any patent whether Debtor is
licensor or licensee, (C) all income, royalties, damages, payments, accounts and
accounts receivable now or hereafter due and/or payable under and with respect
thereto, including, without limitation, damages and payments for past, present
or future infringements thereof, (d) the right (but not the obligation) to ▇▇▇
for past, present and future infringements thereof, (e) all rights corresponding
thereto throughout the world in all jurisdictions in which such patents have
been issued or applied for, and (f) the reissues, divisions, continuations,
renewals, extensions and continuations-in-part with any of the foregoing (all of
the foregoing patents and applications and interests under patent license
agreements, together with the items described in clauses (a) through (f) in this
paragraph are sometimes herein individually and collectively referred to as the
"Patents"); and
(vii) all products and proceeds, including,
without limitation, insurance proceeds, of any of the foregoing.
27
29
EXHIBIT B-1
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., Pacific Time
TO: Emerging Growth Industries DATE:_______________________
FAX#: (▇▇▇) ▇▇▇-▇▇▇▇ TIME:_______________________
FROM: __________________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY:___________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:___________________________________________________________
PHONE NUMBER:___________________________________________________________________
FROM ACCOUNT # _________________________ TO ACCOUNT #________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $___________________________________
PRINCIPAL PAYMENT (ONLY) $___________________________________
INTEREST PAYMENT (ONLY) $___________________________________
PRINCIPAL AND INTEREST (PAYMENT) $___________________________________
OTHER INSTRUCTIONS:_____________________________________________________________
________________________________________________________________________________
All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of the date
of the telephone request for and Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_______________________________________ ____________________
Authorized Requester Phone #
_______________________________________ ____________________
Authorized Requester Phone #
__________________________________________________
Authorized Signature (Bank)
30
EXHIBIT B-2
ADVANCE REQUEST FORM
The undersigned hereby certifies as follows:
I, ________________ , am the duly elected and acting _________________
of _______________.
This Advance Request Form is delivered on behalf of Borrower to Imperial
Bank, pursuant to that certain Loan and Security Agreement among Borrower and
Imperial Bank dated March , 1999 (the "Agreement"). The terms used herein which
are defined in the Agreement have the same meaning herein as ascribed to them
therein.
Borrower hereby requests on _______________, 19___ an Advance (the
"Advance") as follows:
(a) The date on which the Advance is to be made is __________ ,
19___ .
(b) The amount of the Advance is to be ______________ ($_____),
in the form of a Prime Rate Advance of $_____ ; and/or a LIBOR Rate Advance of
$_____ for an Interest Period of ___ months.
All representations and warranties of Borrower stated in the Agreement
are true, correct and complete in all material respects as of the date of this
request for an Advance; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
IN WITNESS WHEREOF, this Advance Request Form is executed by the
undersigned as of this _____________ day of __________________ , 19___ .
By:_________________________________
Title:______________________________
31
EXHIBIT B-3
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, ____________________, am the duly elected and acting
____________________ of ______________________ ("Borrower").
This certificate is delivered on behalf of Borrower to Bank, pursuant to
Section 2 of that certain Loan and Security Agreement among Borrower and Bank
(the "Agreement"). The terms used in this LIBOR Rate Conversion/Continuation
Certificate which are defined in the Agreement have the same meaning herein as
ascribed to them therein.
Borrower hereby requests on ____________________________, 19____ a LIBOR
Rate Advance (the "Advance") as follows:
(a) (i) A rate conversion of an existing Prime Rate Advance from a
Prime Rate Advance to a LIBOR Rate Advance; or
(ii) A continuation of an existing LIBOR Rate Advance as a LIBOR
Rate Advance.
[Check (i) or (ii) above]
(b) The date on which the Advance is to be made is __________________,
19____
(c) The amount of the Advance is to be ___________________
($____________), for an Interest Period of ____________ month(s).
All representations and warranties of Borrower stated in the Agreement
are true, correct and complete in all material respects as of the date of this
request for a loan; 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.
IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation Certificate
is executed by the undersigned as of this _____________ day of
____________________, 19_________.
____________________________________
By:_________________________________
Title:______________________________
FOR INTERNAL BANK USE ONLY
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
========================= ====================== ======================= ======================
___%
========================= ====================== ======================= ======================
32
EXHIBIT C
BORROWING BASE CERTIFICATE
--------------------------------------------------------------------------------
Borrower: N2H2, INC. Lender: Imperial Bank
Commitment Amount: up to $2,000,000
--------------------------------------------------------------------------------
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 25% over 90 day accounts $__________________
6. Concentration Limits $__________________
7. Foreign Accounts $__________________
8. Governmental Accounts (over 90 day accounts) $__________________
9. Contra Accounts $__________________
10. Demo Accounts $__________________
11. Intercompany/Employee Accounts $__________________
12. Other (less than 120 days exceeding $150,000, or
please explain on reverse) $__________________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________________
14. Eligible Accounts (#3 minus #13) $__________________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $__________________
BALANCES
16. Maximum Loan Amount $ 2,000,000
=========
17. Total Funds Available [Lesser of #15 or #16] $__________________
18. Present balance owing on Line of Credit $__________________
19. Outstanding under Sublimits ( ) $__________________
20. RESERVE POSITION (#17 minus #18 and #19) $__________________
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 Imperial Bank.
N2H2, INC.
By:_______________________________
Authorized Signer
33
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: IMPERIAL BANK
FROM: N2H2, INC.
The undersigned authorized officer of N2H2, INC. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending ______________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies"
column.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Monthly financial statements Monthly within 30 days Yes No
Operating Budgets, annual budgets, FYE within 30 days Yes No
and forecasts
Annual (CPA Audited) FYE within 90 days Yes No
10K and 10Q Within 5 days of SEC filing Yes No
(as applicable)
A/R & A/P Agings Monthly within 20 days Yes No
A/R Audit Initial and Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Adjusted Quick Ratio 1 1.25:1.00 _____:1.00 Yes No
Minimum Tangible Net Worth 2 $7,000,000 $_____ Yes No
Minimum Liquidity 3 or 1.50:1.00 or _____:1.00 Yes No
Debt Service Coverage 4 1.50:1.00
Maintain on a Quarterly Basis:
Profitability/Loss 5 > $1.00 $_____ Yes No
1 Increasing to 1.50:1.00 subsequent to an IPO/Equity Infusion.
2 Measured only subsequent to an IPO/Equity Infusion.
3 Increasing to 1.75:1.00 subsequent to an IPO/Equity Infusion.
4 Notwithstanding the foregoing, after Borrower has maintained a Debt
Service Coverage of at least 1.50 to 1.00 for six consecutive months,
Borrower thereafter shall maintain such Debt Service Coverage of at
least 1.50 to 1.00 as of the last day of each month in lieu of the
liquidity covenant.
5 Quarterly losses allowed as follows: $1,850,000 for quarter ending
03/31/99; $1,250,000 for quarter ending 06/30/99; $500,000 for quarter
ending 09/30/99; $2,700,000 for quarter ending 12/31/99. Profitability
of at least $1.00 required thereafter.
Comments Regarding Exceptions: See BANK USE ONLY
Attached. Sincerely,
Received by:___________________________
__________________________________ AUTHORIZED SIGNER
Signature Date:__________________________________
__________________________________ Verified:______________________________
Title AUTHORIZED SIGNER
Date:__________________________________
__________________________________
Date Compliance Status: Yes No
34
SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Section 1.1)
CAPITAL LEASES
Account # - Description Mar 31, '99
25004- AT&T Lease #680619/Pac #4 21,997.11
25005- First Sierra - Balboa #2 10,858.31
25006- BanCorp Financial/Pacifica #1 32,265.27
25007- Colonial Pacific (Pacifica #5) 66,632.35
25008- ▇▇▇▇▇▇ Software 11,105.92
▇▇▇▇▇- ▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇▇ #▇ 32,366.17
25010- GF Funding IV #1/Prolease 22,233.60
25011- GF Funding IV #2/Prolease 25,487.59
25012- Green Tree FinancialPacifica #2 28,660.58
▇▇▇▇▇- ▇▇▇▇▇▇▇▇▇ #▇ 22,733.99
▇▇▇▇▇- ▇▇▇▇▇▇▇▇▇ #▇ 26,603.63
25015- JLA Credit/Pacifica #3 32,662.85
25016- Leasetec #1 L603500 35,549.57
25017- Leasetec #2 L603501 17,697.33
25018- Leasetec #3 L603502 16,990.18
25019- Leasetec #4 L603503 33,504.73
25022- Summit 66,591.06
25023- ▇▇▇▇▇▇ Cubicles 10,274.93
25024- Source Capital/Vista 30,468.80
25025- Leasetec #5 L603506 56,837.61
25026- Leasetec #6 L603504 34,286.16
25027- Saddleback 49,426.15
25028- Rockford Ind./Cisco Eq 3,858.02
25029- Rave #3 92,827.04
25030- Rave #4 229,356.64
25031- Rave #5 104,045.64
------------
1,115,321.23
============
NOTES PAYABLE
Washington Partners 29,522.53
Toll Free Cellular 57,000.00
============
86,522.53
============
35
SCHEDULE OF EXCEPTIONS (cont.)
Permitted Investments (Section 1.1)
▇▇▇▇ ▇▇▇▇▇ Commercial Paper
Seafirst Pacific Horizon Account
Permitted Liens (Section 1.1): Please see schedule of Permitted Indebtedness.
Prior Names (Section 5.7)
Litigation (Section 5.8):
The Company entered into a letter agreement dated May 8, 1998 with Carpediem
Capital, Inc. ("Carpediem") under which Carpediem was engaged as the Company's
exclusive agent until January 31, 1999 in connection with arranging a preferred
equity or common equity investment in the Company (a "Transaction"). The Company
terminated the letter agreement as of August 8, 1998. Carpediem has claimed that
if a Transaction closes within 24 months following termination, Carpediem is
entitled to a warrant to purchase 3% of the post-transaction shares of the
Company and to receive a "success fee" based on the following schedule:
6.0% of first 7.5 million
4.0% of next $5.0 million
3.0% of next $5.0 million
2.0% of next $5.0 million
1.0% of all monies thereafter
36
CORPORATE RESOLUTIONS TO BORROW
--------------------------------------------------------------------------------
BORROWER: N2H2, INC.
--------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of N2H2, INC. (the
"Corporation"), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of Washington.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true
and complete copies of the Articles of Incorporation, as amended and the
Restated Bylaws of the Corporation, each of which is in full force and effect on
the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
------------------------------ ------------------------------ ------------------------------
▇▇▇▇ ▇▇▇▇▇▇ CFO /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------ ------------------------------ ------------------------------
▇▇▇ ▇▇▇▇▇▇▇▇ Controller /s/ ▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------ ------------------------------ ------------------------------
------------------------------ ------------------------------ ------------------------------
------------------------------ ------------------------------ ------------------------------
acting for an on behalf of this Corporation and as its act and deed be,
and they hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Imperial Bank ("Bank"),
on such terms as may be agreed upon between the officers, employees, or agents
and Bank, such sum or sums of money as in their judgment should be borrowed,
without limitation, including such sums as are specified in that certain Loan
and Security Agreement dated as of April 30, 1999 (the "Loan Agreement").
EXECUTE LOAN AGREEMENT. To execute and deliver to Bank the Loan
Agreement, and also to execute and deliver to Bank one or more renewals,
extensions, modifications, refinancings, consolidations, or substitutions for
one or more of the notes, or any portion of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
1
37
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on April 30, 1999 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------
--------------------------------------------------------------------------------
2
38
IMPERIAL BANK
MEMBER FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(REVOLVER)
Name(s): N2H2, Inc. Date: April 30, 1999
$ paid to you directly by Cashiers Check No.
$2,000,000.00 credited to deposit account No. ▇▇▇▇▇▇▇▇ when Advances are requested or
by cashiers check or wire.
$ amounts paid to Bank for
Amounts paid to others on your behalf:
$0.00 to Imperial Bank for Loan Fee
$0.00 to Imperial Bank for Document Fee
$ to Imperial Bank for accounts receivable audit (estimate)
$ to Bank counsel fees and expenses
$ To
$ To
$2,000,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as
the authorization for Imperial Bank to disburse the loan proceeds as stated
above.
/s/ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------------- -----------------------------------
Signature Signature
39
IMPERIAL BANK
MEMBER FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
(TERM LOAN)
Name(s): N2H2, Inc. Date: April 30, 1999
$ paid to you directly by Cashiers Check No.
$2,000,000.00 credited to deposit account No. ▇▇▇▇▇▇▇▇ when Advances are requested
$ amounts paid to Bank for
Amounts paid to others on your behalf:
$0.00 to Imperial Bank for Loan Fee
$0.00 to Imperial Bank for Document Fee
$ to Imperial Bank for accounts receivable
audit (estimate)
$ to Bank counsel fees and expenses
$ to
$ to
$2,000,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as
the authorization for Imperial Bank to disburse the loan proceeds as stated
above.
/s/ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------------- -----------------------------------
Signature Signature
40
AGREEMENT TO PROVIDE INSURANCE
TO: IMPERIAL BANK Date: April 30, 1999
9920 ▇. ▇▇ ▇▇▇▇▇▇▇, Ste. 628 Borrower: N2 H2, INC.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
In consideration of a loan in an amount of up to $4,000,000,
secured by all tangible personal property including inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in
force during the term of the loan.
I/We also agree to advise the below named agent to add Imperial
Bank as lender's loss payable on the new or existing insurance policy, and to
furnish Bank at above address with a copy of said policy/endorsements and any
subsequent renewal policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
(a) The amount of the loan, OR
(b) All existing encumbrances, whichever is greater,
But not in excess of the replacement value of the improvements on the
real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of Imperial
Bank, or any other form acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent: J&H/▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Agent's Address: ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Signature of Obligor: /S/ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------------------
Signature of Obligor:
----------------------------------------
--------------------------------------------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date:_______________________
Person Spoken to:____________________________________
Policy Number:_______________________________________
Effective Form:______ To:_________________________
Verified By:_________________________________________
41
IMPERIAL BANK
CALIFORNIA'S BUSINESS BANKS AUTOMATIC DEBIT AUTHORIZATION
MEMBER FDIC
To: IMPERIAL BANK
Re: LOAN # ___________________________________ (Term Loan)
You are hereby authorized and instructed to charge account No. ▇▇▇▇▇▇▇▇ in the
name of N2 H2, INC.
for principal and interest payments due on above referenced loan as set forth
below and credit the loan referenced above.
[X] Debit each interest payment as it becomes due according to the terms of the
note and any renewals or amendments thereof.
[X] Debit each principal payment is at becomes due
according to the terms of the note and any renewals or amendments thereof.
This
Authorization is to remain in full force and effect until revoked in writing.
Borrower Signature Date
/s/ ▇▇▇▇ ▇▇▇▇▇▇ 4-30-99
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42
IMPERIAL BANK
CALIFORNIA'S BUSINESS BANKS AUTOMATIC DEBIT AUTHORIZATION
MEMBER FDIC
To: IMPERIAL BANK
Re: LOAN # ___________________________________ (Revolver)
You are hereby authorized and instructed to charge account No. ▇▇▇▇▇▇▇▇ in the
name of N2 H2, INC
for principal and interest payments due on above referenced loan
as set forth below and credit the loan referenced above.
[X] Debit each interest payment as it becomes due according to the terms
of the note and any renewals or amendments thereof.
[X] Debit each principal payment is at becomes due according to the
terms of the note and any renewals or amendments thereof.
This Authorization is to remain in full force and effect until revoked in
writing.
Borrower Signature Date
/s/ ▇▇▇▇ ▇▇▇▇▇▇ 4-30-99
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43
Debtor: N2 H2, INC.
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(i) all accounts receivable, accounts, chattel paper, contract
rights (including, without limitation, royalty agreements, license agreements
and distribution agreements), documents, instruments, money, deposit accounts
and general intangibles, including, without limitation, returns, repossessions,
books and records relating thereto, and equipment containing said books and
records, all investment property, including securities and securities
entitlements;
(ii) all software, computer source codes and other computer
programs (collectively, the "Software Products"), and all common law and
statutory copyrights and copyright registrations, applications for registration,
now existing or hereafter arising, United States of America and foreign,
obtained or to be obtained on or in connection with the Software Products, or
any parts thereof or any underlying or component elements of the Software
Products together with the right to copyright and all rights to renew or extend
such copyrights and the right (but not the obligation) of Bank (herein referred
to as "Bank" or "Secured Party") to ▇▇▇ in its own name and/or the name of the
Debtor for past, present and future infringements of copyright;
(iii) all goods, including, without limitation, equipment and
inventory (including, without limitation, all export inventory);
(iv) all guarantees and other security therefor;
(v) all trademarks, service marks, trade names and service names
and the goodwill associated therewith;
(vi) (a) all patents and patent applications filed in the United
States Patent and Trademark Office or any similar office of any foreign
jurisdiction, and interests under patent license agreements, including, without
limitation, the inventions and improvements described and claimed therein, (b)
licenses pertaining to any patent whether Debtor is licensor or licensee, (c)
all income, royalties, damages, payments, accounts and accounts receivable now
or hereafter due and/or payable under and with respect thereto, including,
without limitation, damages and payments for past, present or future
infringements thereof, (d) the right (but not the obligation) to ▇▇▇ for past,
present and future infringements thereof, (e) all rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been issued
or applied for, and (f) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part with any of the foregoing (all of the
foregoing patents and applications and interests under patent license
agreements, together with the items described in clauses (a) through (f) in this
paragraph are sometimes herein individually and collectively referred to as the
"Patents"); and
(vii) all products and proceeds, including, without limitation,
insurance proceeds, of any of the foregoing.
44
Debtor: N2 H2, INC.
EXHIBIT A
COLLATERAL DESCRIPTION ATTACHMENT
TO UCC 1 FINANCING STATEMENT
All personal property of Borrower (herein referred to as "Borrower" or
"Debtor") whether presently existing or hereafter created, written, produced or
acquired, including, but not limited to:
(viii) all accounts receivable, accounts, chattel paper,
contract rights (including, without limitation, royalty agreements, license
agreements and distribution agreements), documents, instruments, money, deposit
accounts and general intangibles, including, without limitation, returns,
repossessions, books and records relating thereto, and equipment containing said
books and records, all investment property, including securities and securities
entitlements;
(ix) all software, computer source codes and other computer
programs (collectively, the "Software Products"), and all common law and
statutory copyrights and copyright registrations, applications for registration,
now existing or hereafter arising, United States of America and foreign,
obtained or to be obtained on or in connection with the Software Products, or
any parts thereof or any underlying or component elements of the Software
Products together with the right to copyright and all rights to renew or extend
such copyrights and the right (but not the obligation) of Bank (herein referred
to as "Bank" or "Secured Party") to ▇▇▇ in its own name and/or the name of the
Debtor for past, present and future infringements of copyright;
(x) all goods, including, without limitation, equipment and
inventory (including, without limitation, all export inventory);
(xi) all guarantees and other security therefor;
(xii) all trademarks, service marks, trade names and service
names and the goodwill associated therewith;
(xiii) (a) all patents and patent applications filed in the
United States Patent and Trademark Office or any similar office of any foreign
jurisdiction, and interests under patent license agreements, including, without
limitation, the inventions and improvements described and claimed therein, (b)
licenses pertaining to any patent whether Debtor is licensor or licensee, (c)
all income, royalties, damages, payments, accounts and accounts receivable now
or hereafter due and/or payable under and with respect thereto, including,
without limitation, damages and payments for past, present or future
infringements thereof, (d) the right (but not the obligation) to ▇▇▇ for past,
present and future infringements thereof, (e) all rights corresponding thereto
throughout the world in all jurisdictions in which such patents have been issued
or applied for, and (f) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part with any of the foregoing (all of the
foregoing patents and applications and interests under patent license
agreements, together with the items described in clauses (a) through (f) in this
paragraph are sometimes herein individually and collectively referred to as the
"Patents"); and
(xiv) all products and proceeds, including, without limitation,
insurance proceeds, of any of the foregoing.
By: __________________________
▇▇ ▇▇, INC.
45
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
April 30, 1999 by and between IMPERIAL BANK, a California chartered bank
("Bank") and N2H2, INC., a Washington corporation ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks and Patents
to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Trademarks listed on Schedule C hereto), and including
without limitation all proceeds thereof (such as, by way of example but not by
way of limitation, license royalties and proceeds of infringement suits), the
right to ▇▇▇ for past, present and future infringements, all rights
corresponding thereto throughout the world and all re-issues, divisions
continuations, renewals, extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Bank as a matter of law or equity. Each
right, power and remedy of Bank provided for herein or in the Loan Agreement or
any of the Loan Documents, or now or hereafter existing at law or in equity
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Bank of any one or more
of the rights, powers or remedies provided for in this Intellectual Property
Security Agreement, the Loan Agreement or any of the other Loan Documents, or
now or hereafter existing at law or in equity, shall not preclude the
simultaneous or later exercise by any person, including Bank, of any or all
other rights, powers or remedies.
1
46
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: N2H2, INC.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
Seattle, WA 9816494110 ---------------------------------
Title: CFO
Attn: Mr. ▇▇▇▇ ▇▇▇▇▇▇ ------------------------------
BANK:
IMPERIAL BANK
Address of Bank:
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ J.P. Michael
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ---------------------------------
Title: Vice President
Attn: Corporate Banking Center ------------------------------
2
47
EXHIBIT A
Copyrights
NONE
48
EXHIBIT B
Patents
NONE
49
EXHIBIT C
Trademarks
Registration/ Registration/
Application Application
Description Number Date
----------- ------ ----
Searchopolis 75/978,097 09/21/98
Virtual Locker 75/628,830 01/27/99
Searchopolis 75/556,090 09/21/98
▇▇▇▇ 2,150,399 04/14/98
N2H2 2,150,398 04/14/98