SENIOR SUBORDINATED LOAN AND SECURITY AGREEMENT
BETWEEN
SILICON VALLEY BANK
AND
OBJECTSPACE, INC.
DATED AS OF JUNE 16, 1998
TABLE OF CONTENTS
PAGE
1. DEFINITIONS AND CONSTRUCTION.............................................................................1
1.1 Definitions.....................................................................................1
1.2 Accounting and Other Terms......................................................................6
2. LOAN AND TERMS OF PAYMENT................................................................................6
2.1 Credit Extensions...............................................................................6
2.2 Interest Rates, Payments, and Calculations......................................................7
2.3 Crediting Payments..............................................................................8
2.4 Fees............................................................................................9
2.5 Additional Costs................................................................................9
2.6 Term............................................................................................9
3. CONDITIONS OF LOANS.....................................................................................10
3.1 Conditions Precedent to Initial Credit Extension...............................................10
3.2 Conditions Precedent to all Credit Extensions..................................................10
4.1 Grant of Security Interest.....................................................................11
4.2 Delivery of Additional Documentation Required..................................................11
4.3 Right to Inspect...............................................................................11
5. REPRESENTATIONS AND WARRANTIES..........................................................................11
5.1 Due Organization and Qualification.............................................................11
5.2 Due Authorization: No Conflict................................................................11
5.3 No Prior Encumbrances..........................................................................12
5.4 Merchantable Inventory.........................................................................12
5.5 Intellectual Property..........................................................................12
5.6 Name: Location of Chief Executive Office.......................................................12
5.7 Litigation.....................................................................................12
5.8 No Material Adverse Change in Financial Statements.............................................12
5.9 Solvency.......................................................................................12
5.10 Regulatory Compliance..........................................................................13
5.11 Environmental Condition........................................................................13
5.12 Taxes..........................................................................................13
5.13 Subsidiaries...................................................................................13
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TABLE OF CONTENTS
(CONTINUED)
PAGE
5.14 Government Consents............................................................................13
5.15 Full Disclosure................................................................................13
6. AFFIRMATIVE COVENANTS...................................................................................14
6.1 Good Standing..................................................................................14
6.2 Government Compliance..........................................................................14
6.3 Financial Statements, Reports, Certificates....................................................14
6.4 Inventory: Returns............................................................................14
6.5 Taxes..........................................................................................15
6.6 Insurance......................................................................................15
6.7 Registration of Intellectual Property Rights...................................................15
6.8 Further Assurances.............................................................................16
6.9 Landlord's Lien Subordination..................................................................16
7. NEGATIVE COVENANTS......................................................................................16
7.1 Dispositions...................................................................................16
7.2 Changes in Business, Ownership, Management or Business Locations...............................16
7.3 Mergers or Acquisitions........................................................................17
7.4 Indebtedness...................................................................................17
7.5 Encumbrances...................................................................................17
7.6 Distributions..................................................................................17
7.7 Investments....................................................................................17
7.8 Transactions with Affiliates...................................................................17
7.9 Intellectual Property Agreements...............................................................17
7.10 Subordinated Debt..............................................................................18
7.11 Inventory......................................................................................18
7.12 Compliance.....................................................................................18
7.13 Abandonment of Intellectual Property...........................................................18
8. EVENTS OF DEFAULT.......................................................................................18
8.1 Payment Default................................................................................18
8.2 Covenant Default...............................................................................18
8.3 Material Adverse Change........................................................................19
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TABLE OF CONTENTS
(CONTINUED)
PAGE
8.4 Attachment.....................................................................................19
8.5 Insolvency.....................................................................................19
8.6 Other Agreements...............................................................................19
8.7 Subordinated Debt..............................................................................19
8.8 Senior Debt....................................................................................19
8.9 Judgments......................................................................................20
8.10 Misrepresentations.............................................................................20
9. BANK'S RIGHTS AND REMEDIES..............................................................................20
9.1 Rights and Remedies............................................................................20
9.2 Power of Attorney..............................................................................21
9.3 Accounts Collection............................................................................22
9.4 Bank Expenses..................................................................................22
9.5 Bank's Liability for Collateral................................................................22
9.6 Remedies Cumulative............................................................................22
9.7 Demand: Protest................................................................................22
10. NOTICES.................................................................................................22
11. CHOICE OF LAW AND VENUE.................................................................................23
12. GENERAL PROVISIONS......................................................................................23
12.1 Successors and Assigns.........................................................................23
12.2 Indemnification for Negligence of Bank.........................................................23
12.3 Time of Essence................................................................................24
12.4 Severability of Provisions.....................................................................24
12.5 Amendments in Writing; Integration.............................................................24
12.6 Counterparts...................................................................................24
12.7 Survival.......................................................................................24
12.8 Confidentiality................................................................................24
12.9 Waiver Of Jury Trial...........................................................................25
12.10 Notice Of Oral Agreement.......................................................................25
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SENIOR SUBORDINATED LOAN AND SECURITY AGREEMENT
This SENIOR SUBORDINATED LOAN AND SECURITY AGREEMENT is entered into
as of June 16, 1998, by and between SILICON VALLEY BANK, a
California-chartered bank ("Bank") and OBJECTSPACE, INC., a Delaware
corporation ("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.
"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, partners and
for any Person that is a limited liability company, such Person's, managers
and members.
"BANK EXPENSES" means all reasonable costs or
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and enforcement
of the Loan Documents; and Bank's reasonable attorneys' fees and expenses
incurred in amending, enforcing or defending the Loan Documents, (including
fees and expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought.
"BORROWER'S BOOKS" means all of Borrower's books
and records including, without limitation: 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.
"BUSINESS DAY" means any day that is not a
Saturday, Sunday, or other day on which banks in the State of California are
authorized or required to close.
1.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the Uniform Commercial Code as in
effect in the State of California from time to time.
"COLLATERAL" means the property described on
EXHIBIT A attached hereto.
"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 the single advance of
Credit under the Term Loan or any other extension of credit by Bank for the
benefit of Borrower hereunder.
"EQUIPMENT" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts
and attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income
Security Act of 1974, as amended and the regulations thereunder.
"GAAP" means generally accepted accounting
principles as in effect in the United States 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.
2.
"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 Borrower's
interests in any of the following:
(A) Copyrights, Trademarks, Patents, and Mask Works;
(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 sue 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, Trademarks, or Mask Works, 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, Patents, or Mask Works; 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.
"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.
"INVESTMENT" means any beneficial ownership
(including stock, partnership interest or other securities) of any Person, or
any loan, advance or capital contribution to any Person.
3.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"LIEN" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"LOAN DOCUMENTS" means, collectively, this
Agreement, any note or notes that may be executed by Borrower in favor of Bank
as a part of this Agreement, a warrant subscription agreement, warrant to
purchase stock, registration rights agreement, and any other present or future
agreement entered into between Borrower and/or for the benefit of Bank in
connection with this Agreement, all as amended, extended or restated from time
to time.
"MASK WORKS" means all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired.
"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.
"MAXIMUM LAWFUL RATE" means the maximum rate of
interest and the term "Maximum Lawful Amount" means the maximum amount of
interest that are permissible under applicable state or federal law for the
type of loan evidenced by the Loan Documents. If .the Maximum Lawful Rate is
increased by statute or other governmental action subsequent to the date of
this Agreement, then the new Maximum Lawful Rate shall be applicable to the
payments provided for hereunder from the effective date thereof, unless
otherwise prohibited by applicable law.
"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.
"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.
"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.
"PAYMENT DATE" means the last calendar day of each
month commencing on the first such date after the Closing Date and ending on
the earlier to occur of (i) repayment in full of all Obligations due under
this Agreement or (ii) the Term Maturity Date.
4.
"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) Subordinated Debt
(D) Indebtedness to trade creditors incurred in the
ordinary course of business; and
(E) Indebtedness secured by Permitted Liens.
"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
instrumentality 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 the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., and (iii) certificates of deposit maturing no more than one (1)
year from the date of investment therein issued by Bank.
"PERMITTED LIENS" means the following:
(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 and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, 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; and
(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
5.
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.
"RESPONSIBLE OFFICER" means each of the Chief
Executive Officer, the President, the Chief Financial Officer and the
Controller of Borrower.
"SCHEDULE" means the schedule of exceptions
attached hereto, if any
"SUBORDINATED DEBT" means, with the prior written
consent of Bank to incur such debt, any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"SUBSIDIARY" means with respect to any Person,
corporation, partnership, company association, joint venture, or any other
business entity of which more than fifty percent (50%) of the voting stock or
other equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"TERM LOAN" means a Credit Extension of Three
Million and No/100 Dollars ($3,000,000.00).
"TERM MATURITY DATE" means June 16, 2001.
"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 AND OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including" and "includes" shall always be read
as meaning "including (or includes) without limitation", when used herein or
in any other Loan Document.
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 also promises to pay interest on the unpaid principal amount of such
Credit Extensions at rates in accordance with the terms hereof.
6.
(a) Subject to and upon the terms and conditions of
this Agreement, Bank shall make a Term Loan available to Borrower.
(b) When Borrower desires to obtain the Credit
Extension, Borrower will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. Pacific time, on the Business Day that the Credit
Extension is to be made. The notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of EXHIBIT B hereto. Bank is
authorized to make the Credit Extension under this Agreement, based upon
instructions received from a Responsible Officer or a designee of a
Responsible Officer. 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 the Credit Extension made under this SECTION 2.1 to
Borrower's deposit account.
(c) The Term Loan shall terminate on the Term
Maturity Date, at which time all Obligations under this SECTION 2.1 and other
amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.2 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in SECTION
2.2(B), Credit Extensions shall bear interest, on the average daily balance
thereof, at a per annum rate equal to twelve percent (12%).
(b) DEFAULT RATE. All Obligations shall bear
interest, from and after the occurrence of an Event of Default, at the
"Default Interest Rate." The Default Interest Rate shall be, at Bank's option,
(i) the Maximum Lawful Rate, if such Maximum Lawful Rate is established by
applicable law: or (ii) the interest rate applicable immediately prior to the
occurrence of the Event of Default plus five (5) percentage points, if no
Maximum Lawful Rate is established by applicable law: or (iii) eighteen
percent (18%) per annum: or (iv) such lesser rate of interest as Bank's, its
sole discretion may choose to charge: but never more than the Maximum Lawful
Rate or at a rate that would cause the total interest contracted for, charged
or received by Bank to exceed the Maximum Lawful Amount.
(c) PAYMENTS. Interest hereunder shall be due and
payable on each Payment Date. 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.
(d) COMPUTATION.
(i) SPREADING OF INTEREST. Because of the
possibility of irregular periodic balances of principal, the fluctuating
nature of the interest rate, or premature payment, the total interest that
will accrue under this Agreement cannot be determined in advance. Bank does
not intend to contract for charge or receive more than the Maximum Lawful Rate
or Maximum Lawful Amount permitted by applicable state or federal law, and to
prevent such an occurrence Bank and Borrower agree that all amounts of
interest, whenever contracted for, charged or received by Bank, with respect
to the loan of money evidenced by the Loan
7
Documents, shall be spread, prorated or allocated over the full period of time
the Obligations are unpaid, including the period of any renewal or extension
thereof. If the maturity of the Obligations is accelerated for any reason
whether as a lawsuit or an Event of Default or otherwise prior to the full
stated term, the total amount of interest contracted for, charged or received
to the time of such demand shall be spread, prorated or allocated along with
any interest thereafter accruing over the full period of time that the
Obligations thereafter remain unpaid for the purpose of determining if such
interest exceeds the Maximum Lawful Amount.
(ii) EXCESS INTEREST. At maturity (whether by
acceleration or otherwise) or on earlier final payment of the Obligations,
Bank shall compute the total amount of interest that has been contracted for,
charged or received by Bank or payable by Borrower hereunder and compare such
amount to the Maximum Lawful Amount that could have been contracted for,
charged or received by Bank. If such computation reflects that the total
amount of interest that has been contracted for, charged or received by Bank
or payable by Borrower exceeds the Maximum Lawful Amount, then Bank shall
apply such excess to the reduction of the principal balance and not to the
payment of interest: or if such excess interest exceeds the unpaid principal
balance, such excess shall be refunded to Borrower. This provision concerning
the crediting or refund of excess interest shall control and take precedence
over all other agreements between Borrower and Bank so that under no
circumstances shall the total interest contracted for, charged or received by
Bank exceed the Maximum Lawful Amount.
(iii) DAILY COMPUTATION OF INTEREST. To the
extent permitted by applicable law, Bank at its option may either (i)
calculate the per diem interest rate or amount based on the actual number of
days in the year (365 or 366, as the case may be), and charge that per diem
interest rate or amount each day, or (ii) calculate the per diem interest rate
or amount as if each year has only 360 days, and charge that per diem interest
rate or amount each day for the actual number of days of the year (365 or 366
as the case may be). If the Loan Documents call for monthly payments, Bank at
its option may determine the payment amount based on the assumption that each
year has only 360 days and each month has 30 days. In no event shall Bank
compute the interest in a manner that would cause Bank to contract for, charge
or receive interest that would exceed the Maximum Lawful Rate or the Maximum
Lawful Amount.
2.3 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, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations 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.
8
2.4 FEES. Borrower shall pay to Bank the following:
(a) FACILITY FEE. A Facility Fee equal to Thirty Thousand
and No/100 Dollars ($30,000), which fee shall be due on the Closing Date and
shall be fully earned and non-refundable;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;
(c) BANK EXPENSES. Upon demand from Bank, including,
without limitation, upon the date hereof, all Bank Expenses incurred through
the date hereof, including reasonable attorneys' fees and expenses, and, after
the date hereof, all Bank Expenses, including reasonable attorneys' fees and
expenses, as and when they become due.
2.5 ADDITIONAL COSTS. In case any law, after the date hereof, any
regulation, treaty or official directive or the interpretation or application
thereof by any court or any governmental authority charged with the
administration thereof or the compliance with any guideline or request of any
central bank or other governmental authority (whether or not having the force
of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Bank imposed by the United States of
America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank: or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement, and the result of any of the foregoing
is to increase the cost to Bank, reduce the income receivable by Bank or
impose any expense upon Bank with respect to the Obligations, Bank shall
notify Borrower thereof within one hundred eighty (180) days of Bank incurring
any such reduced income or increased cost or expense. Borrower agrees to pay
to Bank the amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or determined,
upon presentation by Bank of a statement of the amount and setting forth
Bank's calculation thereof, all in reasonable detail, which statement shall be
deemed true and correct absent manifest error.
2.6 TERM. Except as otherwise set forth herein, 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 Term 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.
9
Notwithstanding termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
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 articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) an intellectual property security agreement;
(d) UCC-1 financing statements covering the
Collateral and UCC-3 termination statements or assignments in favor of Bank
from each Person, other than Bank, that has a security interest in the
Collateral or any part thereof;
(e) an opinion of Borrower's counsel;
(f) a warrant subscription agreement by and between
the Borrower, Bank, and certain stockholders named therein (the "WARRANT
SUBSCRIPTION AGREEMENT")
(g) a warrant to purchase stock;
(h) a registration rights agreement;
(i) a subordination agreement;
(j) insurance certificate;
(k) payment of the fees and Bank Expenses then due
specified in SECTION 2.4 hereof;
(l) Certificate of Foreign Qualification (if
applicable); and
(m) 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
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(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. 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 and all proceeds thereof, in order to secure prompt
payment 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. Borrower acknowledges that following the
occurrence and during the continuance of an Event of Default hereunder Bank
may place a "hold" on any deposit account pledged as Collateral to secure the
Obligations. Notwithstanding termination of this Agreement, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
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 interest 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, 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.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its
state of incorporation and qualified and licensed to do business in, and is in
good standing in Texas, and in any other state in which the conduct of its
business or its ownership of property requires that it be so qualified where
the failure to so qualify would result in a Material Adverse Effect.
5.2 DUE AUTHORIZATION: NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor
will they constitute an event of default under any material
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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 MERCHANTABLE INVENTORY. All Inventory is in all material respects
of good and marketable quality, free from all material defects.
5.5 INTELLECTUAL PROPERTY. Borrower is the owner of the Patents,
Trademarks, Copyrights and Mask Works subject to licenses granted by Borrower
to its customers in the ordinary course of business. To Borrower's knowledge,
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. Except for and upon the
filing with the United States Patent and Trademark Office with respect to the
Patents and Trademarks and the Register of Copyrights with respect to the
Copyrights and Mask Works necessary to perfect the security interests created
hereunder, and except as has been already made or obtained, no authorization,
approval or other action by, and no notice to or filing with, any United
States governmental authority or United States regulatory body is required
either (i) for the grant by Borrower of the security interest granted hereby
or for the execution, delivery or performance of Loan Documents by Borrower in
the United States or (ii) for the perfection in the United States or the
exercise by Bank of its rights and remedies hereunder.
5.6 NAME: LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do business under any name other
than that specified on the signature page hereof. The chief executive office
of Borrower is located at the address indicated in SECTION 10 hereof.
5.7 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency
in which an adverse decision could have a Material Adverse Effect on
Borrower's interest or Bank's security interest in the Collateral.
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof
and Borrower's consolidated results of operations for the period then ended.
There has not been a material adverse change in the consolidated financial
condition of Borrower since the date of the most recent of such financial
statements submitted to Bank on or about the Closing Date.
5.9 SOLVENCY. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities;
the Borrower is not left with
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unreasonably small capital after the transactions contemplated by this
Agreement; and Borrower is able to pay its debts (including trade debts) as
they mature.
5.10 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could 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 its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulations G, T and U of the Board of Governors
of the Federal Reserve System). Borrower has complied with all the provisions
of the Federal Fair Labor Standards Act. Borrower has not violated any
statutes, laws, ordinances or rules applicable to it, violation of which could
have a Material Adverse Effect.
5.11 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to
the best of Borrower's knowledge, by previous owners or operators, in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with
applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release, or other disposition of hazardous waste
or hazardous substances into the environment.
5.12 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected therein.
5.13 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted.
5.15 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates
or statements not misleading.
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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 and good standing in its jurisdiction of
incorporation and maintain qualification in Texas and every other jurisdiction
in which the failure to so qualify could have a Material Adverse Effect.
Borrower shall maintain in force, and shall cause each of its Subsidiaries to
maintain, to the extent consistent with prudent management of Borrower's
business, 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 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 month, a company prepared consolidated balance
sheet and income statement covering Borrower's consolidated operations during
such period, in a form and certified by an officer of Borrower reasonably
acceptable to Bank; (b) as soon as available, but in any event within one
hundred twenty (120) days after the end of each of Borrower's fiscal years,
other than Borrower's fiscal year 1997 for which Borrower shall have one
hundred and eighty (180) days, 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) within
five (5) days of filing, 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, 10-Q and 8-K 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 and No/100 Dollars (S100,000.00) or more;
(e) prompt notice of any material change in the composition of the
Intellectual Property Collateral including, but not limited to, any subsequent
ownership right of the Borrower in or to any Copyright, Patent or Trademark
not specified in any intellectual property security agreement between Borrower
and Bank or knowledge of an event that materially adversely effects the value
of the Intellectual Property Collateral: and (f) such budgets, sales
projections, operating plans or other financial information as Bank may
reasonably request from time to time.
6.4 INVENTORY: RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same basis
and in accordance with the usual customary
14
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 and No/100 Dollars ($50,000.00).
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 (i) contested in
good faith by appropriate proceedings, (ii) is reserved against (to the extent
required by GAAP) by Borrower and (iii) no Lien other than a Permitted Lien
results.
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 are 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 fifteen (15) days notice to Bank before canceling its policy for
any reason. At 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.
6.7 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
(a) Within three (3) days thereof, Borrower shall
give Bank notice of its registration with the United States Patent and
Trademark Office or its filing with the United States Copyright Office, as
applicable, of those intellectual property rights referred to in the
Intellectual Property Security Agreement and exhibits thereto and 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 revisions or
additions to the intellectual property rights listed in the Intellectual
Property Security Agreement and exhibits thereto.
15
(b) Borrower shall execute and deliver such
additional instruments and documents from time to time and take such further
action as Bank shall reasonably request to enable Bank to perfect Bank's
security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain
the validity and enforceability of the Trademarks, Patents, Copyrights, and
Mask Works and (ii) use commercially reasonable efforts to detect
infringements of the Trademarks, Patents, Copyrights and Mask Works and
promptly advise Bank in writing of material infringements detected.
(d) 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 6.7 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 6.7.
6.8 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.
6.9 LANDLORD'S LIEN SUBORDINATION. No later than thirty (30) days
after the date hereof, Borrower shall deliver to Bank a Subordination of Lien
from each Person who leases real property to Borrower in form and substance
acceptable to Bank. Borrower acknowledges and agrees that no Credit Extensions
will be made if such subordinations are not delivered by the date set forth
above.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
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:
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 Transfers:
(i) of inventory in the ordinary course of business, (ii) of licenses and
similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; (iii) that constitute payment
of normal and usual operating expenses in the ordinary course of business; or
(iv) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's ownership or management or if David
Norris or Graham Glass ceases to be an employee or director of Borrower and
replacements reasonably satisfactory to Bank are not made in within thirty
(30) days. Borrower will not, without at least fifteen (15) days prior written
notification to Bank, relocate its chief executive office or add any new
offices or business locations.
16
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.
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: provided, Borrower may purchase (i) the Put Shares (as defined
in that certain Stock Purchase Agreement ("Stock Purchase Agreement") dated
August 21, 1996 between David Cook and Borrower) from David Cook under and as
provided in the Stock Purchase Agreement and (ii) the Put (as defined in that
certain Warrant Subscription Agreement ("Subscription Agreement") between
Bank, Borrower, and Borrower's shareholders of even date herewith) from Bank
and as provided in the Subscription Agreement. Borrower will not, without the
prior written consent of Bank, supplement, amend, modify or waive in any way
any provision of the Stock Purchase Agreement. Borrower agrees and
acknowledges that the foregoing right of Borrower to purchase the Put Shares
is not a waiver of any Event of Default which might be created by such
purchase, other than the general prohibition on dividends, distributions or
other payments set forth in the first sentence of this SECTION 7.6 and as
otherwise set forth in SECTION 7.8 below.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Other than Borrower's right to
purchase the Put Shares pursuant to and in accordance with SECTION 7.6 above
and any other existing contractual rights existing on the date hereof and
previously disclosed to the Bank in Section 4.1(e) of the Warrant Subscription
Agreement, 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. Borrower agrees and
acknowledges that right of Borrower to purchase the Put Shares pursuant to and
in accordance with SECTION 7.6 above is not a waiver of any Event of Default
which might be created by such purchase, other than the general prohibition on
any material transaction with an Affiliate of Borrower set forth in the first
sentence of this SECTION 7.8 and as otherwise set forth in SECTION 7.6 above.
7.9 INTELLECTUAL PROPERTY AGREEMENTS. Permit the inclusion in any
material contract to which it becomes a party of any provisions that could or
might in any way prevent the creation of a security interest in Borrower's
rights and interests in any property included within the definition of the
Intellectual Property Collateral acquired under such contracts, except to the
17
extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgement.
7.10 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.
7.11 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. 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.
7.12 COMPLIANCE. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any 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 other 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.
7.13 ABANDONMENT OF INTELLECTUAL PROPERTY. If an Event of Default
has occurred and is continuing, allow any Trademarks, Patents, Copyrights, or
Mask Works to be abandoned, forfeited or dedicated to the public without the
written consent of Bank.
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, within five (5)
calendar days of when due, any of the Obligations.
8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation
under SECTIONS 6.3, or 6.7 or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower 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
the occurrence thereof;
18
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 (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of
the Borrower, or (ii) is a material impairment of the prospect of repayment of
any portion of the Obligations or (iii) is 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 thirty (30) 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 thirty (30) 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).
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 forty-five
(45) 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 the exercise of
a right by such third party or parties to accelerate the maturity of any
Indebtedness in an amount in excess of One Hundred Thousand and No/100 Dollars
($100,000.00) 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 SENIOR DEBT. If an Event of Default (as such term is defined in
that certain Loan and Security Agreement by and between Bank and Borrower,
dated as of February 9, 1998 (the "Senior Loan Agreement")) occurs under the
Senior Loan Agreement;
19
8.9 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
and No/100 Dollars ($100,000.00) 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
8.10 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf 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) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the 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 premises, Borrower
hereby grants Bank a license to enter 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) Without notice to Borrower, set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Skip, 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 non-exclusive,
royalty-free license or other right, solely pursuant to the provisions of
this SECTION 9.1, to use, without charge, Borrower's labels, patents,
copyrights,
20
mask works, 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;
(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 the proceeds thereof
to the Obligations in whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale,
or at any private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
(j) Bank shall have a non-exclusive, royalty-free
license to use the Intellectual Property Collateral to the extent reasonably
necessary, to permit Bank to exercise its rights and remedies upon the
occurrence of an Event of Default.
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 bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the Accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) modify, in its sole
discretion, any intellectual property security agreement entered into between
Borrower and Bank without first obtaining Borrower's approval of or signature to
such modification by amending Exhibit A, Exhibit B, Exhibit C and Exhibit D,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents, Trademarks, or Mask Works in which Borrower no longer
has or claims any right, title or interest; (g) file, in its sole discretion,
one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of Borrower where
permitted by law; and (h) transfer the Intellectual Property Collateral into the
name of Bank or a third party to the extent permitted under the Code provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in SECTION 4.2 regardless of whether an Event of Default
has occurred. The appointment of Bank as Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide Credit Extensions hereunder is terminated.
21
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of
such Account. Borrower shall collect all amounts owing to Borrower for Bank,
receive in trust all payments as Bank's trustee, and if requested or required
by Bank, immediately deliver such payments to Bank in their original form as
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Term Loan 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 expressly set forth
herein, and 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, notice of intent to accelerate, notice of
acceleration, 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.
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
22
overnight delivery service, by certified mail, postage prepaid, return
receipt requested, or by facsimile to Borrower or to Bank, as the case may
be, at its addresses set forth below:
If to Borrower: ObjectSpace, Inc.
14850 Quorum Drive, Suite 500
Dallas, Texas 75240
Attn: Ms. Deborah A. Thomas
Fax: 972/715-9002
with a copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, TX 75202
Attn: Paul H. Amiel
Fax: 214/200-0555
If to Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: Mezzanine Finance, NC472
Fax: 408/969-6501
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
THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW AS IF PERFORMED ENTIRELY WITHIN THE STATE OF CALIFORNIA BY
CALIFORNIA RESIDENTS. EACH OF BORROWER AND BANK HEREBY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA
CLARA, STATE OF CALIFORNIA.
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 FOR NEGLIGENCE OF BANK. BORROWER SHALL
INDEMNIFY, DEFEND, PROTECT AND HOLD HARMLESS BANK AND ITS DIRECTORS,
OFFICERS,
23
EMPLOYEES, AND AGENTS AGAINST: (A) ALL OBLIGATIONS, DEMANDS, CLAIMS, AND
LIABILITIES CLAIMED OR ASSERTED BY ANY OTHER PARTY IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS INCLUDING THOSE BASED UPON OR
ARISING FROM THE NEGLIGENCE OF THE BANK; AND (B) ALL LOSSES OR BANK EXPENSES
IN ANY WAY SUFFERED, INCURRED, OR PAID BY BANK AS A RESULT OF OR IN ANY WAY
ARISING OUT OF, FOLLOWING, OR CONSEQUENTIAL TO TRANSACTIONS BETWEEN BANK AND
BORROWER WHETHER UNDER THE LOAN DOCUMENTS, OR OTHERWISE (INCLUDING WITHOUT
LIMITATION ANY AND ALL CLAIMS ARISING UNDER THE COMPREHENSIVE ENVIRONMENTAL
RESPONSE, COMPENSATION AND LIABILITY ACT, AS AMENDED, THE RESOURCE
CONSERVATION AND RECOVERY ACT, AS AMENDED, OR ANY OTHER FEDERAL, STATE OR
LOCAL LAW, AND THE REGULATIONS PROMULGATED THEREUNDER, FOR THE PROTECTION OF
HEALTH AND THE ENIVORNMENT, AND REASONABLE ATTORNEYS' FEES AND EXPENSES),
EXCEPT FOR LOSSES CAUSED BY BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific provision. If
any term, provision, covenant, or condition of this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the provisions shall remain in full force and effect and shall
in no way be affected, impaired, or invalidated and this Agreement shall be
construed as if such invalid, void or unenforceable provision had never been
contained herein.
12.5 AMENDMENTS IN WRITING; INTEGRATION. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. 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.
12.8 CONFIDENTIALITY. In handling any confidential information of
Borrower, Bank shall exercise the same degree of care that it exercises with
respect to its own proprietary
24
information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this
Agreement except that disclosure of such information may be made (i) to the
Subsidiaries or Affiliates of Bank in connection with their present or
prospective business relations with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans, provided that they have entered
into a comparable confidentiality agreement in favor of Borrower and have
delivered a copy to Borrower, (iii) as required by law, regulation, rule or
order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank, and
(v) as Bank may deem appropriate in connection with the exercise of any
remedies hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank, or becomes part of the public
domain after disclosure to Bank through no fault of Bank; or (b) is disclosed
to Bank by a third party, provided Bank does not have actual knowledge that
such third party is prohibited from disclosing such information.
12.9 WAIVER OF JURY TRIAL. BANK AND BORROWER EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIMS 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.
12.10 NOTICE OF ORAL AGREEMENT. THIS AGREEMENT AND THE LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
OBJECTSPACE, INC.
By: /s/ DEBORAH A. THOMAS
------------------------------------
Name: Deborah A. Thomas
----------------------------------
Title: Vice President - Finance
---------------------------------
SILICON VALLEY BANK
By: /s/ LAURITA J. HERNANDEZ
------------------------------------
Name: Laurita J. Hernandez
----------------------------------
Title: Vice President
---------------------------------
26
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter
acquired, including, without limitation, all machinery, fixtures, vehicles
(including motor vehicles and trailers), and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located;
(b) All inventory, now owned or hereafter acquired,
including, without limitation, all merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products including such inventory as is temporarily out of Borrower's custody
or possession or in transit and including any returns upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing
any of the above;
(c) All contract rights and general intangibles now
owned or hereafter acquired, including, without limitation, goodwill,
trademarks, servicemarks, trade styles, trade names, patents, patent
applications, leases, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights
to payment of any kind;
(d) All now existing and hereafter arising
accounts, contract rights, royalties, license rights and all other forms of
obligations owing to Borrower arising out of the sale or lease of goods, the
licensing of technology or the rendering of services by Borrower, whether or
not earned by performance, and any and all credit insurance, guaranties, and
other security therefor, as well as all merchandise returned to or reclaimed
by Borrower;
(e) All documents, cash, deposit accounts,
securities, investment property, letters of credit, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired and Borrower's
Books relating to the foregoing;
(f) All copyright rights, copyright applications,
copyright registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished, now owned or
hereafter acquired; all trade secret rights, including all rights to
unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired: all
mask work or similar rights available for the protection of semiconductor
chips, now owned or hereafter acquired: all claims for damages by way of any
past, present and future infringement of any of the foregoing; and
(g) All Borrower's Books relating to the foregoing
and any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
1