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EXHIBIT 10.24
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT between FIRST VIRTUAL CORPORATION,
having a mailing address at 3393 Octavius Drive, Santa Clara, CA 95054
("Debtor") and HAMBRECHT & QUIST GUARANTY FINANCE, LLC, a California limited
liability company, having a mailing address at One Bush Street, San Francisco,
California 94104 ("Secured Party") is made and executed on the following terms
and conditions. Debtor has applied to Secured Party for a loan or loans and
other financial accommodations. Debtor understands and agrees that: (a) in
granting, renewing, or extending any Loan, Secured Party is relying upon
Debtor's representations, warranties and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Secured Party
after the initial Loan advance, and other advances of up to Five Million Dollars
cumulatively as may be made pursuant to the Promissory Note dated March 13,
1998, shall be at all times subject to Secured Party's sole judgment and
discretion; and (c) all such Loans shall be and shall remain subject to the
following terms and conditions of this Agreement.
SECTION 1. CERTAIN DEFINITIONS.
The following words shall have the following meanings when used in this
Agreement. Terms not otherwise defined in this Agreement shall have the meanings
attributed to such terms in the California Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
"Affiliate" shall mean, with respect to any Person, a relative, partner,
shareholder holding 25% or more of the voting capital stock of such Person,
director, officer, or employee of such Person, or any parent or subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.
"Agreement" shall mean this Loan and Security Agreement, as may be
modified from time to time, together with all exhibits and schedules attached to
this Loan and Security Agreement from time to time.
"Change of Control" shall mean (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities and Exchange Act of 1934 and the rules of
the Securities and Exchange Commission thereunder as in effect on the date
hereof) of shares representing more than 40% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Debtor; or
(b) occupation of a majority of the seats (other than vacant seats) on the board
of directors of the Debtor by Persons who were neither (i) nominated by the
board of directors of the Debtor nor (ii) appointed by directors so nominated.
"Collateral" means all right, title and interest of Debtor now owned or
hereafter acquired in and to all of its personal property including the
following: (a) all equipment and fixtures (including, without limitation,
furniture, vehicles and other machinery and office equipment), together with all
additions and accessions thereto and replacements therefor; (b) inventory
(including, without limitation, (i) raw materials, work in process and finished
goods and (ii) all such inventory which are returned to or repossessed by
Debtor), together with all additions and accessions thereto, replacements
therefor, products thereof and documents therefor; (c) all accounts, chattel
paper, contract rights and rights to the payment of money; (d) all general
intangibles, including, without limitation, customer and supplier lists and
contracts, books and records, insurance policies, tax refunds, contracts for the
purchase of real or personal property and goodwill of Debtor; (e) deposit
accounts, money, certificated securities, uncertificated securities, instruments
and documents; (f) Intellectual Property, as defined below; and (g) proceeds of
the foregoing (including, without limitation, whatever is receivable or received
when Collateral or proceeds is sold, collected, exchanged, returned, substituted
or otherwise disposed of, whether such disposition is voluntary or involuntary,
including rights to payment and return premiums and insurance proceeds under
insurance
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with respect to any Collateral, and all rights to payment with respect to any
cause of action affecting or relating to the Collateral).
"Contingent Obligation" means, as applied to any Person, without
duplication, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any Indebtedness, as defined below, of another
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, or in respect of which that Person's assets are
pledged (valued, in the case of non-recourse assets pledged, at the lesser of
the fair market value of the encumbered assets or the amount of Indebtedness so
secured); (ii) any obligations with respect to undrawn letters of credit issued
for the account of that Person; and (iii) the aggregate net 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.
"Debtor" shall mean First Virtual Corporation.
"Debtor's Locations" shall mean 3393 Octavius Drive, Santa Clara, CA
95054, and the locations set forth in Schedule I hereto, as updated by Debtor
from time to time.
"Event of Default" shall mean and include any of the Events of Default
set forth below in the section titled "Events of Default."
"GAAP" shall mean generally accepted accounting principles.
"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.
"Intellectual Property" shall mean all right, title and interest of
Debtor now owned or hereafter acquired in and to all of its copyrights, patents
and trademarks whether registered or unregistered, foreign or domestic, and all
applications and recordings in the United States Copyright Office, the United
States Patent and Trademark Office or any similar office or agency of the United
States, any state thereof or any other country, and all continuations, renewals
or extensions of the same, and all trade secrets, inventions (whether or not
patentable), scientific processes, technologies, procedures, models and designs
(in whatever form maintained or recorded, including, without limitation,
computer software and programs), and all books relating thereto, and any and all
contracts, including rights to payment thereunder including accounts receivable,
deposit accounts, reserves, refunds, deposits, and all royalties, distributions,
fees, payments and other monetary obligations owing to Debtor and arising out of
the sale, transfer or licensing of goods and/or services, whether or not earned
by performance, and whether now existing or hereinafter arising, including,
without limitation, license agreements, joint venture agreements and other
collaborative agreements, in each case providing for the use or license of 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.
"Lien" shall mean any mortgage, lien, deed of trust, charge, pledge,
title retention arrangement, capital lease, security interest or other
encumbrance upon or with respect to any property of any kind, real or personal,
movable or immovable, now owned or hereafter acquired.
"Loan" or "Loans" shall mean and include any and all loans and financial
accommodations from Secured Party to Debtor, whether now or hereafter existing,
and
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however evidenced including without limitation those loans and financial
accommodations described herein or described on any exhibit or schedule attached
to this agreement from time to time.
"Loan Obligations" shall mean and include all loans, advances, debts,
liabilities, obligations, or any other financial accommodations, owing by Debtor
to Secured Party arising under this Loan and Security Agreement, the Promissory
Note dated as of the date hereof any promissory note executed and delivered by
Debtor pursuant to this Loan and Security Agreement, the Security Agreement, any
Related Document, or any other agreement between Debtor and Secured Party of
every kind and description (whether or not evidenced by any note or other
instrument and whether or not for the payment of money), direct or indirect,
absolute or contingent, due or to become due, now existing or arising hereafter
including, without limitation, all interest, fees, charges, expenses, attorneys'
fees, and accountants' fees chargeable to Debtor or incurred by Secured Party in
connection with its dealings with Debtor.
"MAE" means (i) a material adverse effect on the assets, financial
condition, business affairs or prospects of Debtor and its Subsidiaries taken as
a whole, (ii) a material adverse effect on the ability of Debtor to repay the
Loan Obligations or otherwise perform its Loan Obligations, or (iii) a material
impairment of the value or priority of Secured Party's security interests in any
of the collateral pledged as security for the Loan Obligations.
"Maturity Date" means the maturity date evidenced on any Promissory
Note.
"Permitted Indebtedness" means (a) Indebtedness of Debtor in favor of
Secured Party arising under this Agreement, the Promissory Note(s) or the
Related Documents, (b) Indebtedness existing on the date of this Agreement and
disclosed in writing to Secured Party, (c) Indebtedness to trade creditors and
with respect to surety bonds and similar obligations incurred in the ordinary
course of business, (d) capital leases or indebtedness incurred solely to
purchase capital assets which are secured in accordance with clause (c) of
"Permitted Liens" below and is not in excess of the lesser of the purchase price
of such equipment or the fair market value of such equipment on the date of
acquisition and not to exceed One Million dollars ($1,000,000) outstanding in
the aggregate at any one time; (e) other Indebtedness not exceeding One Million
dollars ($1,000,000) in the aggregate outstanding at any time; (f) extensions,
refinancings, modifications, amendments and restatements of any of items of
Permitted Indebtedness (a) through (e) above, provided that the principal amount
thereof is not increased or the terms thereof are not modified to impose more
burdensome terms upon Debtor or its Subsidiary, as the case may be; (g)
Permitted Senior Indebtedness, (h) Indebtedness incurred to finance the premiums
on insurance policies, and (i) Prepaid royalities and deferred revenue in
connection with prepaid support services.
"Permitted Investment" means: (a) Investments existing on the date of
this Agreement and disclosed to Secured Party in writing; (b) 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, (c) commercial paper maturing no more than one (1) year
from the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc., ("Moody's"), (d) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by a bank or
financial institution whose short term debt is rated "A-1" (or higher) by S&P or
"P-1" (or higher) by Moody's, (e) any Investments permitted by Debtor's
investment policy, as amended from time to time, provided that any amendment
after the date hereof to such investment policy has been approved by Secured
Party; (f) overnight Investments in a "sweep account" provided by a commercial
bank organized under the laws of the United States or any political subdivision
thereof and having a combined capital and surplus of at least $250 million; (f)
Investments consisting of the endorsement of negotiable instrument for deposit
or collection or similar transaction in the ordinary course of business; (g)
Investments consisting of (i) compensation of employees, officers and directors
of Debtor or its Subsidiaries so long as the Board of
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Directors of Debtor determines that such compensation is in the best interests
of Debtor, (ii) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of business, and (iii) loans to
employees, officers or directors relating to the purchase of equity securities
of Debtor or its Subsidiaries pursuant to employee stock purchase plans approved
by Debtor's Board of Directors; (h) Investments pursuant to or arising under
currency agreements or interest rate agreements entered into in the ordinary
course of business; (i) depository and draft accounts maintained by Debtor in
the ordinary course of its business; and (j) other Investments not exceeding One
Million dollars ($1,000,000) in the aggregate outstanding at any time.
"Permitted Liens" means the following: (a) any Liens existing on the
date of this Agreement and disclosed in writing to Secured Party; (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 Secured Party's security interests; (c)
Liens (i) upon or in any capital assets acquired or held by Debtor or any of its
Subsidiaries to secure the purchase price of such capital assets or indebtedness
incurred solely for the purpose of financing the acquisition or construction of
such capital assets, or (ii) existing on such capital assets at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, accessions thereto and the proceeds thereof;
(d) Liens on equipment leased by Debtor or any Subsidiary pursuant to an
operating lease in the ordinary course of business (including proceeds thereof
and accessions thereto); (e) easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances affecting real property not resulting in an MAE; (f) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payments of customs duties in connection with the importation of goods; (g)
mechanics', materialmen's, warehousemen's, courier's and similar Liens incurred
in the ordinary course of Debtor's business securing obligations not past due;
(h) Liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by Liens of the type described in clauses (a), (c) and
(d) 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, (i)
Permitted Senior Liens, (j) Liens on insurance policies and the proceeds
thereof, securing the payment of the premiums with respect thereto, and (k)
Licenses of Debtor's Intellectual Property in the ordinary course of business
and licenses or similar arrangements and liens or other encumbrances on
Intellectual Property granted or existing in connection with any joint venture,
collaboration, strategic alliance, research and development partnerships or
arrangements, and any similar arrangements or agreements.
"Permitted Senior Liens" means liens securing Permitted Senior
Indebtedness.
"Permitted Senior Indebtedness" means and includes all Indebtedness from
Debtor to Senior Secured Lenders, up to a total amount equal to Three Million
Two Hundred Twenty Five Dollars ($3,250,000) under (i) a Loan and Security
Agreement between Silicon Valley Bank and Debtor dated July 3, 1996, (ii) a
Subordinated Loan and Security Agreement between Comdisco, Inc. and Debtor dated
April 30, 1997, and (iii) a Subordinated Loan and Security Agreement between
Comdisco, Inc. and Debtor dated October 23, 1997.
"Person" means any natural person, corporation, partnership, joint
venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting
in an individual, fiduciary or other capacity.
"Promissory Note(s)" means that certain Promissory Note, executed by
Debtor and dated as of even date herewith, including any amendment thereto, and
any other promissory note, if any, as may be executed by Debtor after the date
herewith and accepted by Secured Party in its sole judgment and discretion,
evidencing additional Loans under this Agreement.
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"Related Documents" means and includes without limitation the Promissory
Note, the Security Agreement, all other promissory notes, credit agreements,
loan agreements, guaranties, security agreements, mortgages, deeds of trust, and
all other instruments and documents, whether now or hereafter existing, executed
in connection with any of the foregoing, provided however that the warrant
purchase agreement and warrant are not Related Documents.
"Security Agreement" means that certain Intellectual Property Security
Agreement between Debtor and Secured Party dated as of even date herewith, as
amended, modified and supplemented from time to time.
"Secured Obligations" shall have the meaning given the term set forth
below in the section titled "Grant of Security Interest".
"Secured Party" shall mean HAMBRECHT & QUIST GUARANTY FINANCE, LLC, its
successors and assigns.
"Senior Secured Lenders" shall mean Silicon Valley Bank and Comdisco,
Inc.
"Subsidiary" means, with respect to any Person, a corporation,
association or other business entity (i) of which outstanding capital stock
having at least the majority of votes entitled to be cast in the election of
directors is owned, directly or indirectly, by such Person and/or any one or
more Subsidiaries of such Person, or (ii) of which at least a majority of voting
interest is owned, directly or indirectly, by such Person and/or one or more
Subsidiaries of such Person.
"Tenant Improvements" means additions, alterations, and improvements
that are installed or attached in such a manner as to become an integral part of
the premises of real property leased by Debtor, including heating, lighting,
electrical, air conditioning, floor to ceiling partitioning, drapery, carpeting,
and flooring, excluding, however, all other moveable furniture and trade
fixtures.
SECTION 2. TERM.
This Agreement shall be effective as of the day this Agreement is executed and
shall continue thereafter until all Loan Obligations of Debtor to Secured Party
have been performed in full.
SECTION 3. SECURITY
Section 3.1 Grant of Security Interest.
Debtor hereby assigns and pledges to Secured Party, and hereby grants to Secured
Party a security interest in and to the Collateral to secure the payment and
performance of all financial obligations of Debtor to Secured Party, however and
whenever arising, including the Loan Obligations (the "Secured Obligations").
Section 3.2 Security Interest Absolute.
All rights of Secured Party and security interests granted hereunder, and all
obligations of Debtor hereunder, shall be absolute and unconditional,
irrespective of:
(i) any lack of validity or enforceability of this Agreement or any of
the other Related Documents;
(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from this
Agreement or any other of the Related Documents, including, without
limitation, any increase in the Secured Obligations resulting from
the extension of additional credit to Debtor, or any of its
Affiliates, or otherwise;
(iii) subject to compliance with applicable laws, any manner of
application of Collateral, or proceeds thereof, to all or any of
the Secured Obligations, or any
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manner of sale or other disposition of any Collateral for all or
any of the Secured Obligations or any other assets of Debtor or any
of its Affiliates; and
(iv) any change, restructuring or termination of the corporate structure
or existence of Debtor or any of its Affiliates.
Section 3.3 Continuing Security Interest.
This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until payment in full of the Secured
Obligations and for so long as any of the covenants or agreements of Debtor
under the Related Documents remain unfulfilled, (b) be binding upon Debtor, its
successors and assigns, and (c) inure to the benefit of, and be enforceable by,
Secured Party, its successors and assigns. Upon payment in full of the Secured
Obligations and performance by Debtor of all of its covenants and agreements
contained in the Related Documents the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to Debtor. Upon any such
termination, Secured Party shall upon request of Debtor execute and deliver to
Debtor a release or releases (including, without limitation, Uniform Commercial
Code termination statements and instruments of satisfaction, discharge, or
reconveyance) to release any liens under this Loan and Security Agreement and
any Related Documents with respect to such released Collateral.
Section 3.4 Limited Authorization.
Debtor hereby authorizes Secured Party to file one or more financing statements,
filings, reports, security agreements or continuation statements in respect
thereof, and amendments thereto, relating to all or any part of the Collateral
without the signature of Debtor where permitted by law, and names Secured Party
as its attorney in fact and authorizes it, if an Event of Default has occurred
and is continuing, to execute any and all financing statements on Debtor's
behalf solely to the extent necessary or advisable to perfect, continue or give
notice of the security interest granted to Security Party hereunder in any of
the Collateral. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
Debtor represents and warrants to Secured Party as of the date of this Agreement
the following:
Section 4.1. Capacity.
Debtor is duly organized, validly existing and in good standing under the laws
of the State of Delaware, and in every other state where failure to so qualify
is reasonably likely to have a MAE.. Debtor has full power, authority, and legal
right to own its properties and assets and to conduct its business as presently
conducted. Debtor does not have any Subsidiaries, other than First Virtual
Limited U.K.
Section 4.2. Authority.
Debtor has full power, authority and legal right to execute and deliver, and to
perform and observe the provisions of this Agreement and the Related Documents.
Debtor's execution, delivery and performance of this Agreement and the Related
Documents have been duly authorized by all necessary corporate action. When duly
executed and delivered by Debtor, this Agreement and the Related Documents will
be legal, valid, and binding obligations of Debtor enforceable in accordance
with their respective terms, except as enforceability may be limited by the
United States Bankruptcy Code, or other statutes affecting creditor's rights
generally or by general principles of equity.
Section 4.3. Compliance.
Debtor is not in material violation of, or in default under (i) any provision of
its certificate of incorporation, articles of incorporation, or bylaws, or (ii)
any material contract, instrument, indenture, judgment, order, writ or decree to
which it or any of its Subsidiaries is a party or by which it or any of them is
bound, or, to the best of its knowledge, of any provision of any federal or
state statute, rule or regulation applicable to the Debtor or any of its
Subsidiaries.
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The execution, delivery, and performance of this Agreement and the Related
Documents will not, with or without the passage of time and giving of notice,
result in any such material violation, conflict or default, or an event that
results in the creation of any material Lien, charge or encumbrance upon any
assets of the Debtor or any of its Subsidiaries or the suspension, revocation,
impairment or forfeiture of any material permit, license, authorization, or
approval applicable to the Debtor or any of its Subsidiaries which is reasonably
likely to have a MAE.
Section 4.4. Financial Statements.
The audited financial statements for Debtor for the nine months ending 9/30/97
and the unaudited financial statement for Debtor that Debtor for the period
ending 1/31/98 supplied to Secured fairly present Debtor's financial condition
as of the date of the statements. Such financial statements have been prepared
in accordance with GAAP, subject, in the case of unaudited financials, to
year-end audit adjustments and footnotes.
Section 4.5. Material Adverse Events.
Since the most recent financial statements provided to Secured Party by Debtor
there has been no event or condition constituting a MAE.
Section 4.6. Taxes.
Each of Debtor and any of its Subsidiaries has filed or caused to be filed all
tax returns which are required to be filed by it. Each of Debtor and any of its
Subsidiaries has paid all taxes which have or may have become due pursuant to
said returns or otherwise or pursuant to an assessment received by Debtor,
except such taxes, if any, as are being contested in good faith and as to which
reserves have been created on the books of Debtor in accordance with GAAP. The
charges, accruals, and reserves in respect of income taxes on the books of
Debtor are adequate. Debtor knows of no proposed tax assessment against it or
any of its Subsidiaries and no extension of time for the assessment of federal,
state, or local taxes of Debtor or any of its Subsidiaries is in effect or has
been requested, except as disclosed in the financial statements furnished to
Secured Party.
Section 4.7. Patents and Trademarks
To the best of its knowledge, Debtor has sufficient title and ownership of all
patents, copyrights, trade secrets, information, proprietary rights and
processes necessary for its business as now conducted without any conflict with
or infringement of the rights of others, except that no representations are made
with respect to noninfringement of patents not issued as of the date hereof or
to any exclusive rights to trade secrets or know-how of the Debtor. Except as
disclosed in the Audited Financial Statements (as defined in Section 6.1) for
Debtor supplied to Secured Party, other than such matters as have been settled,
the Debtor has not received any communications alleging that the Debtor has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, tradenames, copyrights or trade secrets or
other proprietary rights of any other Person or entity, other than such
communication that would not result in a MAE.
Section 4.8. Priority Interest in Collateral.
Debtor is the legal and beneficial owner of the Collateral free and clear of any
Lien, except for Permitted Liens. This Agreement together with the filing of
financing statements creates a valid perfected, security interest in the
Collateral subject only to Permitted Liens to the extent that a security
interest can be perfected by the filing of Uniform Commercial Code financing
statements.
Section 4.9. Location of Collateral.
All of the Collateral of Debtor is located at the Debtor's Locations, except
moveable Collateral that is in transit in the ordinary course of business.
Section 4.10. Hazardous Substances.
None of Debtor's properties or assets has ever been used by Debtor or, to the
best of Debtor'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
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accordance with applicable law; to the best knowledge of Debtor none of Debtor'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 Debtor; and Debtor has not received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by Debtor
resulting in the releasing, or otherwise disposing of hazardous waste or
hazardous substances into the environment.
Section 4.11. Litigation; Compliance with Laws and Agreements.
There are no actions or proceedings pending, or to the knowledge of Debtor
threatened, against or affecting Debtor which, if adversely determined, could
have a MAE. Debtor is not in default with respect to any writ, the breach of
which may have an MAE.
Section 4.12. Full Disclosure.
No representation, warranty or other statement made by Debtor in any certificate
or written statement furnished to Secured Party 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 in the
context made.
Section 4.13. Survival of Representation and Warranties.
Debtor understands and agrees that Secured Party is relying upon the above
representations and warranties in extending Loan advances to Debtor and each of
the above representations and warranties be true and correct as of the date of
each such extension, except as disclosed in writing to Secured Party from time
to time, provided however that if any exceptions have been disclosed to Secured
Party, Secured Party shall have no obligation to extend Loan advances to Debtor.
SECTION 5 CONDITIONS TO LOANS
Section 5.1 Conditions Precedent to Initial Loan.
The obligation of Secured Party to make the initial Loan is subject to the
condition precedent that Secured Party shall have received, in form and
substance satisfactory to Secured Party, the following:
(a) this Agreement; and
(b) a certificate of the Secretary of Debtor with respect to
bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement; and
(c) one or more financing statements (Form UCC-1); and
(d) an insurance certificate evidencing Debtor's compliance
with Section 6.12 of this Agreement; and
(e) the Security Agreement; and
(f) such other documents, and completion of such other
matters, as Secured Party may reasonably deem necessary or
appropriate; and
(g) Opinion of Debtor's Counsel in form and substance
satisfactory to Secured Party in its discretion.
Section 5.2 Conditions Precedent to all Advances
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The obligation of Secured Party to make each Loan, including the initial Loan,
is further subject to the condition precedent that the representations and
warranties contained in this Agreement and the Related Documents shall be true
and correct in all material respects on the date of each such Loan as though
made at and as of each such date, and no Event of Default (or event that with
the passage of time or the giving of notice would result in an Event of Default)
shall have occurred and be continuing, or would result from such Loan. The
making of each Loan shall be deemed to be a representation and warranty by
Debtor on the date of such Loan as to the accuracy of the facts referred to in
this Section 5.2.
Section 6. AFFIRMATIVE COVENANTS.
Debtor agrees to do the following:
Section 6.1. Financial Statements, Reports and Certifications.
Debtor will furnish to Secured Party, in form and substance satisfactory to
Secured Party:
(a) As soon as possible after the end of each fiscal year of
Debtor, a complete copy of its audited year-end financial statements
which shall include the balance sheet of Debtor as of the close of the
fiscal year, an income statement and a statement of cash flows for such
year, audited by certified public accountants selected by Debtor and
satisfactory to Secured Party.
(b) No later than thirty (30) days after the end of each month,
Debtor's balance sheet as of the close of that month and its income
statement and cash flow statement for that month certified as being
prepared in accordance with generally accepted accounting principles by
the chief financial officer of Debtor.
(c) Reports on receivable and payable agings, aged by invoice
date, within 10 days after the end of each month
(d) No later than ninety (90) days after the end of each fiscal
year, Debtor's new budget or operating plan for the then current fiscal
year.
(e) No later than thirty (30) days after the end of each fiscal
quarter, a certificate of the Debtor's chief financial officer, or other
equivalent officer, stating that there are no defaults by the Debtor
under any of its agreements with the Secured Party or describing any
existing default(s) and specific action being taken to cure such
default(s). The Debtor's chief financial officer, or other equivalent
officer, will, within five days after Debtor's obtaining knowledge of
the occurrence of an event of default under any of the foregoing, issue
a statement describing the default, and specific action being taken to
cure the default.
(f) Promptly after receipt thereof provide all audit reports
prepared by the Debtor's independent accountants, notice of any action
or preceding before any court or governmental agency, copies of all
federal and state patent, trademark or copy right applications and
registrations of the same, notice of any circumstance which may
reasonably be expected to have a MAE on the Debtor, and promptly after
request therefor such other information as the Secured Party may
reasonably request.
(g) If Debtor becomes a company the stock of which is traded on a
nationally recognized public stock exchange, Debtor's obligations
hereunder shall be satisfied by providing Secured Party with all
financial information filed with the Securities and Exchange Commission
within five (5) days after each filing, and by providing copies of all
press releases as soon as reasonably practicable after they are
published, and by providing, if requested in writing
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by Secured Party, all of the information described in Sections 6.1(a)
and 6.1(b) within thirty (30) days of such written request.
Section 6.2 Other Information.
Debtor will (a) maintain books and records concerning its business that are
complete and accurate in all material respects, (b) upon request, furnish to
Secured Party such information, statements, lists of property and accounts,
lists of assets and liabilities, agings of receivables and payables, inventory
schedules, insurance certificates or reports, budgets, forecasts, or reports as
Secured Party may reasonably request with respect to the business, affairs, and
financial condition of Debtor, and (c) permit Secured Party or representatives
thereof, subject to the confidentiality provisions of Section 10.10, with
reasonable notice to Debtor, to inspect the properties of Debtor and any of its
Subsidiaries and to inspect, audit, make copies of, and make extracts from, the
books or accounts of Debtor and any of its Subsidiaries.
Section 6.3 Expenses.
Debtor will pay all reasonable out-of-pocket expenses of Secured Party
(including, but not limited to, reasonable fees and disbursements of Secured
Party's) incident to (a) the protection of the rights of Secured Party under
this Agreement and the Related Documents, including, but not limited to, the
perfection of Secured Party's Lien in Debtor's Collateral and any amendments,
extensions and renewals thereof or (b) defense by Secured Party against all
claims against Secured Party relating to any of its acts of commission or
omission directly or indirectly relating to this Agreement and the Related
Documents, all whether by judicial proceedings or otherwise (other than claims
which are (i) sustained by a court of competent jurisdiction, (ii)
non-appealable and (iii) predicated on Secured Party's gross negligence or
willful misconduct); or (c) otherwise incurred in connection with Debtor, this
Agreement, or any Related Document. Without limiting the generality of the
foregoing, Debtor shall reimburse Secured Party for all reasonable attorneys'
fees and all other reasonable costs incurred by Secured Party in order to do the
following; commence, intervene in, or defend any action or proceeding; initiate
any complaint to be relieved of the automatic stay in bankruptcy; file or
prosecute any bankruptcy claim, third-party claim, or other claim; examine,
audit, copy and inspect any of the Collateral or any of Debtor's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Secured Party's security interest in, the Collateral; and otherwise represent
Secured Party n any litigation relating to Debtor. If either Secured Party or
Debtor files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys' fees including (but not limited to) reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree award or judgment. All attorneys' fees and costs to
which Secured Party may be entitled pursuant to this Paragraph shall be part of
Debtor's Secured Obligations and shall bear interest at a rate equal to the
highest interest rate applicable to the Note. Debtor will also pay and save the
Secured Party harmless from any and all liability with respect to any stamp or
other taxes (other than income taxes based on Secured Party's income) which may
be determined to be payable in connection with the making of Loans, the entering
into of this Agreement and the Related Documents or any action of Secured Party
with respect to the Collateral, including, without limitation, transfer of the
Collateral to Secured Party's name or that of its nominee or the purchaser at a
foreclosure sale.
Section 6.4 Notice of Litigation.
Debtor will promptly give notice to Secured Party in writing of any proceedings,
claim, or dispute which may exist between Debtor and any Person, and which, if
adjudicated adversely to Debtor, could reasonably be expected to result in a MAE
or any labor controversy resulting in or threatening to result in a strike
against Debtor, or proposal by any public authority to acquire a material
portion of the assets or business of Debtor.
Section 6.5 Maintenance of Existence.
Subject to Section 7.3 hereof, Debtor will preserve and maintain its legal
existence and all rights, privileges and franchises of it or any of its
Subsidiaries necessary or desirable in the normal conduct of its or their
business, will conduct its or their business in an orderly,
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Loan and Security Agreement, Page 10
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efficient and regular manner, and will comply in all material respects with all
applicable laws and regulations and the terms of any indenture, note, agreement,
contract or other instrument to which it or any of its Subsidiaries may be a
party or under which it or any of its Subsidiaries or its or their properties
may be bound, the noncompliance with which could reasonably be expected to
result in a MAE.
Section 6.6 Maintenance of Properties, etc.
Debtor will maintain and preserve all of the properties of it or any of its
Subsidiaries, necessary or useful in the proper conduct of its or their business
in good working order and condition, ordinary wear and tear and dispositions of
obsolete equipment and other dispositions in the ordinary course of business
excepted.
Section 6.7 Material Adverse Change.
Promptly inform Secured Party in writing of an event or condition constituting
an MAE.
Section 6.8 Other Agreements.
Other than as otherwise allowed, comply (and cause each of its Subsidiaries to
comply) with all material terms and conditions of all other material agreements,
whether now or hereafter existing, between Debtor (and each of its Subsidiaries)
and any other party.
Section 6.9 Loan Proceeds.
Use all Loan proceeds solely for Debtor's business operations, working capital
and general corporate purposes and to make Permitted Investments.
Section 6.10 Further Assurances.
Make, execute and deliver to Secured Party such promissory notes, mortgages,
deed of trust, security agreements, financing statements, instruments, documents
and other agreements as Secured Party or its attorneys may reasonably request to
evidence and secure the Loan and to perfect Secured Party's Liens.
Section 6.11 Use of Collateral.
Debtor shall keep the Collateral located at the Debtor's Locations, other than
in ordinary course of Debtor's business. Debtor agrees to give Secured Party at
least thirty (30) days prior written notice before changing its name from that
set forth on the signature page hereof, before moving its chief executive office
or principal place of business from the address set forth on the signature page
hereof, or before using any trade names or styles in its business in California
other than the use of those trade names and styles described to Secured Party in
writing prior to the date of this Agreement.
Section 6.12 Insurance
Debtor shall, at its own cost and expense, maintain insurance with respect to
the Collateral against loss or damage by fire, theft, explosion and all other
hazards and risks ordinarily insured against by other owners or users of such
properties in similar business and comparable size for the full insurable value
of the Collateral, including earthquake insurance, except that earthquake
insurance shall not be required provided that Debtor records a duplicate copy of
all of the software used in Debtor's products at an off-site location no less
frequently than monthly. All such policies of insurance shall be in form and
substance reasonably satisfactory to, and shall be with insurers reasonably
acceptable to, Secured Party, and shall include a loss payable endorsement
naming Secured Party loss payee, as its interest may appear, all in form and
substance reasonably satisfactory to Secured Party, except in respect of
equipment financed or leased by third parties. Upon each renewal of such
insurance, Debtor shall, if so requested by Secured Party, deliver to Secured
Party, original or duplicate policies of such insurance and a report of a
reputable insurance broker with respect to such insurance
Section 6.13 Government Compliance
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Debtor 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 would reasonably be expected to result in a
MAE.
Section 6.14. Perfection and Priority of Security Interest;
Landlord Waivers
Debtor shall assist Secured Party at all times to have a first-priority
perfected and enforceable security interest in all of the Collateral, subject
only to the Permitted Liens, provided, however, that Debtor not be required to
perfect Secured Party's security interest in any Collateral located outside the
U.S., or perfect the registration of Intellectual Property outside of the U.S..
Debtor shall at all times defend Secured Party and the Collateral against all
claims of others, subject to Permitted Liens. Debtor is not and will not become
a lessee under any real property lease pursuant to which the lessor or any other
person may obtain any rights in any of the Collateral, other than Tenant
Improvements, and no such lease now prohibits, restrains, impairs or will
prohibit, restrain or impair Debtor's right to remove any Collateral, other than
Tenant Improvements, from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise), Debtor
shall, if requested by Secured Party, use its best efforts to cause such third
party to execute and deliver to Secured Party, in form acceptable to Secured
Party, such waivers, consents, agreements and subordination's as Secured Party
shall specify. Debtor will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the collateral now or
in the future may be located.
SECTION 7. NEGATIVE COVENANTS.
Debtor covenants and agrees that, without the prior written consent of Secured
Party, which may be withheld in Secured Party's sole discretion, so long as any
credit hereunder shall be available and until payment in full of the outstanding
Loan Obligations or for so long as Secured Party may have any commitment to make
any Loans, Secured Party will not do any of the following:
Section 7.1 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.
Section 7.2 Liens.
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.
Section 7.3 Mergers or Acquisitions
Merge or consolidate with or into any other business organization, or acquire,
or permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person; provided that this Section 7.3
shall not apply to (i) transactions among Debtor and its Subsidiaries in which
the Debtor is the surviving entity, (ii) mergers and acquisitions entered into
for the purpose of changing the Debtor's or any Subsidiary's jurisdiction of
incorporation and (iii) acquisitions, the purchase price for which consists
solely of capital stock or the cash portion of the purchase price for which does
not exceed Five Million dollars ($5,000,000), other than the purchase of stock
in a Subsidiary, but Debtor shall give Secured Party at least 20 days advance
written notice of any transaction in clause (i), (ii), or (iii) above and shall
execute and deliver all such documents and instruments and take all such actions
as are necessary to continue in effect Secured Party's first-priority, perfected
security interest in the Collateral.
Section 7.4 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 Debtor and its
Subsidiaries and any business substantially similar, related or ancillary
thereto.
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Section 7.5 Distributions.
Pay any dividends or make any other distribution or payment on account of or in
redemption, retirement or purchase of any capital stock; provided, that (i)
Debtor may declare and make any dividend payment or other distribution payable
in its equity securities, (ii) Debtor may convert any of its convertible
securities into other securities pursuant to the terms of such convertible
securities or otherwise in exchange therefor, and (iii) for so long as an Event
of Default has not occurred, Debtor may repurchase stock from former employees,
officers, consultants, business partners, and directors of Debtor in accordance
with the terms of it employee stock ownership plans or other agreements.
Section 7.6 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 or otherwise; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the Intellectual Property of Debtor or its
Subsidiaries; (iii) Transfers of worn-out or obsolete equipment, or equipment
financed by other vendors, (iv) Transfers of exclusive licenses and similar
arrangements with geographic region or time limitations or otherwise in
Borrower's discretion, and (v) Transfers of other assets not in excess of
$500,000 in any fiscal year during the term of this Agreement.
Section 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.
Section 7.8 Transactions with Affiliates
Directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Debtor except for transactions that are in the ordinary
course of Debtor's business, upon fair and reasonable terms that are no less
favorable to Debtor than would be obtained in an arm's length transaction with a
nonaffiliated Person.
SECTION 8. EVENTS OF DEFAULT
If one or more of the following events shall occur ("Events of Default" or an
"Event of Default"):
(a) Debtor shall fail to pay principal or interest on any Loan
when due, or
(b) Debtor shall fail to pay any other Loan Obligation when due
and such failure shall continue for 3 business days; or
(c) Any representation or warranty made by Debtor in, or pursuant
to, this Agreement or any Related Document shall prove to have been
incorrect or misleading in any material respect when made or deemed
made; or
(d) Debtor shall be in default in the performance any term, or
provision of Section 7; or
(e) any breach of any of the provisions of Section 6.1, 6.2, or
6.10, which is not cured within 10 days following written notice of such
breach; or
(f) There shall be a default in any agreement to which Debtor 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 would reasonably be expected to have a MAE;
or
(g) An order for relief shall be entered against Debtor by any
United States Bankruptcy Court; or Debtor shall generally not pay its
debts as they become due (within the meaning of 11 U.S.C. 303(h) as at
any time amended or any
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Loan and Security Agreement, Page 13
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successor statute thereto) or make an assignment for the benefit of
creditors; or Debtor shall apply for or consent to the appointment of a
custodian, receiver, trustee, or similar officer for it or for all or
any substantial part of its property; or such custodian, receiver,
trustee, or similar officer shall be appointed without the application
or consent of Debtor and such appointment shall continue undischarged
for a period of sixty (60) days; or Debtor shall institute (by petition,
application, answer, consent, or otherwise) any bankruptcy, insolvency,
reorganization, moratorium, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application, or otherwise) against Debtor and shall remain
undismissed for a period of sixty (60) days; or
(h) This Agreement or any of the Related Documents ceases to be
in full force and effect (including failure of this Agreement or any
Related Document to create a valid and perfected first priority security
interest or lien subject to Permitted Liens in all the Collateral at any
time and for any reason); or
(i) Commencement of foreclosure, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of Debtor
against any Collateral with a fair market value of One Hundred Thousand
Dollars ($100,00) or more, or any creditor takes, attempts to take or
gives written or oral notice to Debtor of its intent to take any action
against the property of Debtor or any of its subsidiaries on or in which
Secured Party has a lien or security interest. This includes a
garnishment, attachment, or levy on or of any of Debtor's deposit
accounts; or
(j) There shall occur a MAE; or
(k) There shall occur a Change of Control; or
(l) Except for the events described in (a) through (j) above,
Debtor shall be in default in the performance of, or Debtor fails or
neglects to perform, keep, or observe, any term, provision, condition,
covenant, or agreement contained in this Agreement, or in any of the
Related Documents, and Debtor has failed to cure such default within
thirty (30) days from the occurrence thereof; or
(m) 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 Debtor and shall
remain unsatisfied and unstayed for a period of thirty (30) days;
SECTION 9 REMEDIES
Section 9.1 Rights and Remedies
Upon the occurrence and during the continuance of an Event of Default, Secured
Party 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 Debtor:
(a) Declare all Loan Obligations, whether evidenced by this
Agreement, by any of the Related Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8(g) all Loan Obligations shall become immediately due and payable
without any action by Secured Party);
(b) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Secured Party
reasonably considers advisable in the exercise of its reasonable credit
judgment;
(c) Without notice to or demand upon Debtor, make such payments
and do such acts as Secured Party considers necessary or reasonable to protect
its security interest
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Loan and Security Agreement, Page 14
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in the Collateral. Debtor agrees to assemble the Collateral if Secured Party so
requires, and to make the Collateral available to Secured Party as Secured Party
may designate. Debtor authorizes Secured Party 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 Lien which in
Secured Party'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 Debtor's owned premises, Debtor hereby grants Secured Party a license
to enter into possession of such premises and to occupy the same, without
charge, for up to one hundred twenty (120) days in order to exercise any of
Secured Party's rights or remedies provided herein, at law, in equity, or
otherwise;
(d) Without notice to Debtor, set off and apply to the Loan
Obligations any and all (i) balances and deposits of Debtor held by Secured
Party, or (ii) indebtedness at any time owing to or for the credit or the
account of Debtor held by Secured Party;
(e) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Secured Party is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Debtor'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 Secured Party's exercise of its rights under this Section 9.1,
Debtor's rights under all licenses and all franchise agreements shall inure to
Secured Party's benefit;
(f) 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 Debtor's premises) as Secured Party
determines is commercially reasonable;
(g) Secured Party may credit bid and purchase at any public sale;
(h) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Debtor.
Section 9.2 Increase Interest Rate
Upon Debtor's failure to pay all amounts declared due pursuant to this section,
including failure to pay upon final maturity, if permitted under applicable law,
(a) the interest rate on the Promissory Note(s) shall be increased up to fifteen
percent (15%) per annum, or, if lower, up to the maximum interest amount
allowable by applicable law, and (b) any unpaid accrued interest shall be added
to principal and such sum will bear interest therefrom until paid at the rate
herein provided.
Section 9.3 Additional Expenses
Debtor will, upon demand, pay to Secured Party the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, that Secured Party may incur in respect of Debtor
including without limitation those incurred in connection with (i) the custody,
preservation, use, or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (ii) the exercise or enforcement of any
of the rights of Secured Party hereunder, or (iii) the failure by Debtor to
perform or observe any of the provisions hereof, (iv) any performance by Secured
Party under Section 9.5, and the reasonable expenses of Secured Party incurred
in connection therewith.
Section 9.4 Secured Party Appointed Attorney-in-Fact.
So long as any Event of Default is continuing, Debtor hereby irrevocably
appoints Secured Party as Debtor's attorney-in-fact, with full authority in the
place and stead of Debtor or otherwise, from time to time in Secured Party's
good-faith discretion to take any action and to execute any instrument that
Secured Party may reasonably deem necessary or advisable to
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accomplish the purposes of this Agreement, in a manner consistent with the terms
hereof, including, without limitation:
(a) to obtain and adjust insurance required to be paid to Secured Party
pursuant to Section 6.12 hereof; and
(b) to ask, demand, collect, sue for, recover, compromise, receive, and give
acquaintance and receipts for moneys due and to become due under or in
connection with the Collateral; and
(c) to file any claims or take any action or institute any proceedings that
Secured Party may deem necessary or desirable for the collection or
perfection of a security interest in any of the Collateral or otherwise
to enforce the rights of Secured Party with respect to any of the
Collateral; and
(d) to execute any and all applications, documents, papers and instruments
for Secured Party to use any of the Collateral, to grant or issue any
exclusive or nonexclusive license with respect to any of the Collateral,
and to assign, convey or otherwise transfer title to or dispose of any
of the Collateral.
Section 9.5 Secured Party May Perform.
If Debtor fails to perform any agreement contained herein, Secured Party may
itself perform, or cause the performance of, such agreement. Secured Party and
any representatives of Secured Party shall have, in addition to all its other
rights under this Agreement, the right to obtain access to Debtor's data
processing equipment, computer hardware and software relating to the Collateral
and to use all of the foregoing and the information contained therein in any
manner Secured Party deems necessary for the purpose of effectuating its rights
under this Agreement and any other of the Related Documents. Debtor agrees that
Secured Party has no obligation to preserve rights to the Collateral against any
other.
Section 9.6 Secured Party's Duties.
The powers conferred on Secured Party hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon Secured Party to
exercise any such powers. Except for the safe custody of any Collateral in the
possession of Secured Party, and the accounting for moneys and for other
properties actually received by Secured Party hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining thereto.
Section 9.7 Other Rights and Remedies
Secured Party may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein, all the rights and remedies of a
secured party on default under the Uniform Commercial Code of the State of
California (the "Code") in effect at that time (whether or not the Code then
applies to the affected Collateral), and remedies granted to it under any of the
other Related Documents, at law, in equity or otherwise available.
SECTION 10. MISCELLANEOUS PROVISIONS.
The following miscellaneous provision are a part of this Agreement:
Section 10.1 Amendments.
This Agreement, together with any Related Documents, constitutes the entire
understanding and agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.
Section 10.2 Applicable Law.
This Agreement has been executed, delivered and accepted by each party hereto in
the State of California, and this Agreement shall be governed by and construed
in accordance with the laws of the State of California.
Section 10.3 Caption Headings.
Caption headings in this Agreement are for convenience purposes only and are not
to be used to interpret or define the provisions of this Agreement.
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Section 10.4 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 Debtor without
Secured Party's prior written consent, which consent may be granted or withheld
in Secured Party's sole discretion. Secured Party shall have the right at any
time with or without the consent of Debtor to sell, transfer, or negotiate all
or any part of, or any interest in the Loan Obligations, this Agreement or any
of the Related Agreements, and upon any such sale, transfer or negotiation, the
assignee thereof shall be entitled to all of the right title and interest of the
Secured Party so transferred.
Section 10.5 Consent to Loan Participation.
Debtor agrees to and consents to Secured Party's sale, or transfer, whether now
or later, of one or more participation interest in the Loans to one or more
purchasers, whether related or unrelated to Secured Party; provided, that in no
event shall Secured Party sell or transfer a participation to any competitor of
Debtor. Secured Party may provide, without any limitation whatsoever, to any one
or more purchasers, or potential purchasers, any information or knowledge
Secured Party may have about Debtor or about any other matter relating to the
Loan, and Debtor hereby waives any rights to privacy it may have with respect to
such matters; provided such purchasers agree to the confidentiality provisions
hereof. Debtor additionally waives any and all notices of sale of participation
interest, as well as all notices of any repurchase or such participation
interest in the Loans. Debtor further waives all rights of offset or
counterclaim that it may have now or later against Secured Party or against any
purchaser of a participation interest and unconditionally agrees that either
Secured Party or such purchaser may enforce Debtor's obligation under the Loan
irrespective of the failure or insolvency of any holder of any interest in the
Loans. Debtor further agrees that the purchaser of a participation interest may
enforce its interest irrespective of any personal claims or defenses that Debtor
may have against Secured Party. Any costs associated with the attempt to arrange
any such participation interest will be borne by Secured Party.
Section 10.6 Indemnification.
Debtor hereby indemnifies and saves and holds Secured Party and any participant
(or any persons, employees, officers or agents designated by Secured Party and
any participant) harmless from and against any and all claims, damages, loss,
liability or judgments which may be incurred or sustained by Secured Party, any
participant, and such designees or asserted against Secured Party, any
participant, and such designees, directly or indirectly, in connection with the
existence of or the exercise of any of the rights of Secured Party under this
Security Agreement or any of the of the Related Documents except to the extent
the same arises by reason of the gross negligence or willful misconduct of the
Person seeking indemnification.
Section 10.7 Notices.
All notices required to be given under this Agreement shall be given in writing
and shall be effective when actually received or five days after being deposited
in the United States mail, first class, postage prepaid, addressed to the party
to whom the notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is to
change the party's address. To the extent permitted by applicable law, if there
is more than one Debtor, notice to any Debtor will constitute notice to all
Debtors. For notice purposes, Debtor agrees to keep Secured Party informed at
all times of Debtor's current address(es).
Section 10.8. Severability.
If a court of competent jurisdiction finds any provision of this Agreement to be
invalid or unenforceable as to any person or circumstances, such finding shall
not render that provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be deemed to be
modified to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid and
enforceable.
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Section 10.9 Waiver.
Secured Party shall not be deemed to have waived any rights under this
Agreement, unless such waiver is given in writing and signed by Secured Party.
No delay or omission on the part of Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Secured Party
of a provision of this Agreement shall not prejudice or constitute a waiver of
Secured Party's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Secured Party, nor
any course of dealing between Secured Party and Debtor, shall constitute a
waiver of any of Secured Party's rights or of any obligations of Debtor as to
any future transactions. Whenever the consent of Secured Party is required under
this Agreement, the granting of such consent by Secured Party in any instance
shall not constitute continuing consent in subsequent instances where such
consent is required and in all cases such consent may be granted or withheld in
the sole discretion of Secured Party.
Section 10.10. Confidentiality.
In handling any confidential information Secured Party shall exercise the same
degree of care that it exercises with respect to its own proprietary information
of the same types to maintain the confidentiality of any non-public information
thereby received or received pursuant to or in connection with this Agreement
except that disclosure of such information may be made (i) to the Subsidiaries
of Affiliates of Secured Party in connection with their present or prospective
business relations with Debtor, provided that they have entered into a
comparable confidentiality agreement in favor of Debtor and have delivered a
copy to Debtor, (ii) to prospective transferees or purchasers of any interest in
the Loans, provided that they have entered into a comparable confidentiality
agreement in favor of Debtor and have delivered a copy to Debtor, (iii) as
required by law, regulations, rule or order, subpoena, judicial order or similar
order and (iv) as may be required in connection with the examination, audit or
similar investigation of Secured Party. Confidential information hereunder shall
not include information that either: (a) is in the public domain or in the
knowledge or possession of Secured Party when disclosed to Secured Party, or
becomes part of the public domain after disclosure to Secured Party through no
fault of Secured Party; or (b) is disclosed to Secured Party by any third party,
provided Secured Party does not have actual knowledge that such third party is
prohibited from disclosing such information.
Section 10.11. Counterparts.
This Agreement may be executed in any number of counterparts, each of which when
so executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
SECTION 10.12. WAIVER OF JURY TRIAL.
DEBTOR AND SECURED PARTY EACH HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT, ANY RELATED AGREEMENT OR ANY OF THE LOAN OBLIGATIONS. EACH OF
DEBTOR AND SECURED PARTY HEREBY ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO
HAVE BEEN INDUCED TO ENTER TO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
Section 10.13 Subordination Agreements.
Secured Party hereby agrees to execute a form of subordination agreement of each
Senior Secured Creditor.
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19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the 12th day
of March, 1998:
DEBTOR:
FIRST VIRTUAL CORPORATION
By: /s/ J.O. MITCHELL
--------------------------------
Title: CFO
-----------------------------
SECURED PARTY:
HAMBRECHT & QUIST GUARANTY FINANCE, LLC:
By: /s/ ANDREW W. KAHN
----------------------------------
Title: President
-------------------------------
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