Exhibit 10.1
Viking Systems, Inc.
Form 8-K
File No. 000-49636
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of September
14, 2004, between SILICON VALLEY BANK, a California chartered bank, with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
(FAX 408-654-6212) ("Bank") and Viking Systems, Inc., a Nevada corporation, with
offices at 7514 Girard Avenue, Suite 1509, La Jolla, California 92037 (FAX
858-225-0467) ("Borrower"), provides the terms on which Bank shall lend to
Borrower and Borrower shall repay Bank. The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document. Capitalized terms in this Agreement shall have the
meanings set forth in Section 13. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meanings provided by the Code, to the
extent such terms are defined therein.
2 LOAN AND TERMS OF PAYMENT
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank
the unpaid principal amount of all Advances hereunder with all interest, fees
and finance charges due thereon as and when due in accordance with this
Agreement.
2.1.1 Financing of Accounts.
(a) Availability. Subject to the terms of this Agreement, Borrower may
request that Bank finance specific Eligible Accounts. Bank may, in its sole
discretion in each instance, finance such Eligible Accounts by extending
credit to Borrower in an amount equal to the result of the Advance Rate
multiplied by the face amount of the Eligible Account (the "Advance"). Bank
may, in its sole discretion, change the percentage of the Advance Rate for
a particular Eligible Account on a case by case basis. When Bank makes an
Advance, the Eligible Account becomes a "Financed Receivable."
(b) Maximum Advances. The aggregate face amount of all Financed
Receivables outstanding at any time may not exceed the Facility Amount, and
Bank shall have no obligation to make Advances in excess of FOUR HUNDRED
THOUSAND DOLLARS ($400,000) in the aggregate at any time outstanding.
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(c) Borrowing Procedure. Borrower will deliver an Invoice Transmittal
for each Eligible Account it offers. Bank may rely on information set forth
in or provided with the Invoice Transmittal.
(d) Credit Quality; Confirmations. Bank may, at its option, conduct a
credit check of the Account Debtor for each Account requested by Borrower
for financing hereunder in order to approve any such Account Debtor's
credit before agreeing to finance such Account. Bank may also verify
directly with the respective Account Debtors the validity, amount and other
matters relating to the Accounts (including confirmations of Borrower's
representations in Section 5.3) by means of mail, telephone or otherwise,
either in the name of Borrower or Bank from time to time in its sole
discretion.
(e) Accounts Notification/Collection. Bank may notify any Person owing
Borrower money of Bank's security interest in the funds and verify and/or
collect the amount of the Account.
(f) Maturity. This Agreement shall terminate and all Obligations
outstanding hereunder shall be immediately due and payable on the Maturity
Date.
(g) Bank's Discretion. Notwithstanding anything to the contrary
contained herein, Bank is not obligated to finance any Eligible Accounts.
Bank and Borrower hereby acknowledge and agree that Bank's agreement to
finance Eligible Accounts hereunder is discretionary in each instance.
Accordingly, there shall not be any recourse to Bank, nor liability of
Bank, on account of any delay in Bank's making of, and/or any decline by
Bank to make, any loan or advance requested hereunder. In addition, this
Agreement may be terminated by Borrower or Bank at any time.
2.2 Collections, Finance Charges, Remittances and Fees. The Obligations
shall be subject to the following fees and Finance Charges. Unpaid fees and
Finance Charges may, in Bank's discretion, accrue interest and fees as described
in Section 9.2 hereof.
2.2.1 Collections. Collections will be credited to the Financed Receivable
Balance for such Financed Receivable, but if there is an Event of Default, Bank
may apply Collections to the Obligations in any order it chooses. If Bank
receives a payment for both a Financed Receivable and a non-Financed Receivable,
the funds will first be applied to the Financed Receivable and, if there is no
Event of Default then existing, the excess will be remitted to Borrower, subject
to Section 2.2.7.
2.2.2 Facility Fee. A fully earned, non-refundable facility fee of Five
Thousand Dollars ($5,000) is due upon execution of this Agreement.
2.2.3 Finance Charges. In computing Finance Charges on the Obligations
under this Agreement, all Collections received by Bank shall be deemed applied
by Bank on account of the Obligations three (3) Business Days after receipt of
the Collections. Borrower will pay a finance charge (the "Finance Charge") on
each Financed Receivable which is equal to the Applicable Rate divided by 360
multiplied by the number of days each such Financed Receivable is outstanding
multiplied by the outstanding Financed Receivable Balance for such Financed
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Receivable. The Finance Charge is payable when the Advance made based on such
Financed Receivable is payable in accordance with Section 2.3 hereof.
2.2.4 Collateral Handling Fee. Borrower will pay to Bank a collateral
handling fee equal to 0.375% per month of the Financed Receivable Balance for
each Financed Receivable outstanding based upon a 360 day year (the "Collateral
Handling Fee"). The Collateral Handling Fee is payable when the Advance made
based on such Financed Receivable is payable in accordance with Section 2.3
hereof. In Computing Collateral Handling Fees under this agreement, all
Collections received by Bank shall be deemed applied by Bank on account of
Obligations three (3) Business Days after receipt of the Collections. After an
Event of Default, the Collateral Handling Fee will increase an additional 0.50%
effective immediately upon such Event of Default.
2.2.5 Accounting. After each Reconciliation Period, Bank will provide an
accounting of the transactions for that Reconciliation Period, including the
amount of all Financed Receivables, all Collections, Adjustments, Finance
Charges, Collateral Handling Fee and the Facility Fee. If Borrower does not
object to the accounting in writing within thirty (30) days it shall be
considered accurate. All Finance Charges and other interest and fees are
calculated on the basis of a 360 day year and actual days elapsed.
2.2.6 Deductions. Bank may deduct fees, Finance Charges, Advances which
become due pursuant to Section 2.3, and other amounts due pursuant to this
Agreement from any Advances made or Collections received by Bank.
2.2.7 Lockbox; Account Collection Services. As and when directed by Bank
from time to time, at Bank's option and at the sole and exclusive discretion of
Bank (regardless of whether an Event of Default has occurred), Borrower shall
direct each Account Debtor (and each depository institution where proceeds of
Accounts are on deposit) to remit payments with respect to the Accounts to a
lockbox account established with Bank or to wire transfer payments to a cash
collateral account that Bank controls (collectively, the "Lockbox"). It will be
considered an immediate Event of Default if the Lockbox is not set-up and
operational within forty-five (45) days from the date of such direction by Bank.
Until such Lockbox is established, the proceeds of the Accounts shall be paid by
the Account Debtors to an address consented to by Bank. Upon receipt by Borrower
of such proceeds, the Borrower shall immediately transfer and deliver same to
Bank, along with a detailed cash receipts journal. Provided no Event of Default
exists or an event that with notice or lapse of time will be an Event of
Default, within three (3) days of receipt of such amounts by Bank, Bank will
turn over to Borrower the proceeds of the Accounts other than Collections with
respect to Financed Receivables and the amount of Collections in excess of the
amounts for which Bank has made an Advance to Borrower, less any amounts due to
Bank, such as the Finance Charge, the Facility Fee, payments due to Bank, other
fees and expenses, or otherwise; provided, however, Bank may hold such excess
amount with respect to Financed Receivables as a reserve until the end of the
applicable Reconciliation Period if Bank, in its discretion, determines that
other Financed Receivable(s) may no longer qualify as an Eligible Account at any
time prior to the end of the subject Reconciliation Period. This Section does
not impose any affirmative duty on Bank to perform any act other than as
specifically set forth herein. All Accounts and the proceeds thereof are
Collateral and if an Event of Default occurs, Bank may apply the proceeds of
such Accounts to the Obligations.
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2.2.8 Good Faith Deposit. Borrower has paid to Bank a Good Faith Deposit of
$5,000 (the "Good Faith Deposit") to initiate Bank's due diligence review
process. Any portion of the Good Faith Deposit not utilized to pay Bank Expenses
will be applied to the Facility Fee.
2.3 Repayment of Obligations; Adjustments.
2.3.1 Repayment. Borrower will repay each Advance on the earliest of: (a)
the date on which payment is received of the Financed Receivable with respect to
which the Advance was made, (b) the date on which the Financed Receivable is no
longer an Eligible Account, (c) the date on which any Adjustment is asserted to
the Financed Receivable (but only to the extent of the Adjustment if the
Financed Receivable remains otherwise an Eligible Account), (d) the date on
which there is a breach of any warranty or representation set forth in Section
5.3 or a breach of any covenant in this Agreement, or (e) the Maturity Date
(including any early termination). Each payment will also include all accrued
Finance Charges and Collateral Handling Fees with respect to such Advance and
all other amounts then due and payable hereunder.
2.3.2 Repayment on Event of Default. When there is an Event of Default,
Borrower will, if Bank demands (or, upon the occurrence of an Event of Default
under Section 8.5, immediately without notice or demand from Bank) repay all of
the Advances. The demand may, at Bank's option, include the Advance for each
Financed Receivable then outstanding and all accrued Finance Charges, Collateral
Handling Fee, attorneys and professional fees, court costs and expenses, and any
other Obligations.
2.3.3 Debit of Accounts. Bank may debit any of Borrower's deposit accounts
for payments or any amounts Borrower owes Bank hereunder. Bank shall promptly
notify Borrower when it debits Borrower's accounts. These debits shall not
constitute a set-off.
2.3.4 Adjustments. If at any time during the term of this Agreement any
Account Debtor asserts an Adjustment or if Borrower issues a credit memorandum
or if any of the representations, warranties or covenants set forth in Section
5.3 are not longer true in all material respects, Borrower will promptly advise
Bank.
2.4 Power of Attorney. Borrower irrevocably appoints Bank and its
successors and assigns as attorney-in-fact and authorizes Bank, regardless of
whether there has been an Event of Default, to: (i) sell, assign, transfer,
pledge, compromise, or discharge all or any part of the Financed Receivables;
(ii) demand, collect, sue, and give releases to any Account Debtor for monies
due and compromise, prosecute, or defend any action, claim, case or proceeding
about the Financed Receivables, including filing a claim or voting a claim in
any bankruptcy case in Bank's or Borrower's name, as Bank chooses; (iii)
prepare, file and sign Borrower's name on any notice, claim, assignment, demand,
draft, or notice of or satisfaction of lien or mechanics' lien or similar
document; (iv) notify all Account Debtors to pay Bank directly; (v) receive,
open, and dispose of mail addressed to Borrower; (vi) endorse Borrower's name on
checks or other instruments (to the extent necessary to pay amounts owed
pursuant to this Agreement); and (vii) execute on Borrower's behalf any
instruments, documents, financing statements to perfect Bank's interests in the
Financed Receivables and Collateral and do all acts and things necessary or
expedient, as determined solely and exclusively by Bank, to protect, preserve,
and otherwise enforce Bank's rights and remedies under this Agreement, as
directed by Bank.
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3 CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. Bank's agreement to make the
initial Advance is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, such documents, and
completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation, subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(b) an Intellectual Property Security Agreement / Negative Pledge
Agreement covering Intellectual Property;
(c) subordination agreements/intercreditor agreements by certain
Persons;
(d) Perfection Certificate(s) by Borrower;
(e) insurance certificates;
(f) payment of the fees and Bank Expenses then due and payable;
(g) Certificate of Foreign Qualification (if applicable);
(h) Certificate of Good Standing/Legal Existence; and
(i) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. Bank's agreement to make each
Advance, including the initial Advance, is subject to the following:
(a) receipt of the Invoice Transmittal;
(b) Bank shall have (at its option) conducted the confirmations and
verifications as described in Section 2.1.1 (d); and
(c) each of the representations and warranties in Section 5 shall be
true on the date of the Invoice Transmittal and on the effective date of
each Advance and no Event of Default shall have occurred and be continuing,
or result from the Advance. Each Advance is Borrower's representation and
warranty on that date that the representations and warranties in Section 5
remain true.
4 CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations and the performance of
each of Borrower's duties under the Loan Documents, a continuing security
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interest in, and pledges and assigns to Bank, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof. Borrower warrants and represents that the security interest
granted herein shall be a first priority security interest in the Collateral.
Except as noted on the Perfection Certificate, Borrower is not a party to,
nor is bound by, any material license or other agreement with respect to which
Borrower is the licensee that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower's interest in such license or agreement
or any other property. Without prior consent from Bank, Borrower shall not enter
into, or become bound by, any such license or agreement which is reasonably
likely to have a material impact on Borrower's business or financial condition.
Borrower shall take such steps as Bank requests to obtain the consent of, or
waiver by, any person whose consent or waiver is necessary for all such licenses
or contract rights to be deemed "Collateral" and for Bank to have a security
interest in it that might otherwise be restricted or prohibited by law or by the
terms of any such license or agreement, whether now existing or entered into in
the future.
If the Agreement is terminated, Bank's lien and security interest in the
Collateral shall continue until Borrower fully satisfies its Obligations. If
Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Bank.
4.2 Authorization to File Financing Statements. Borrower hereby authorizes
Bank to file financing statements, without notice to Borrower, with all
appropriate jurisdictions in order to perfect or protect Bank's interest or
rights hereunder, which financing statements may indicate the Collateral as "all
assets of the Debtor" or words of similar effect, or as being of an equal or
lesser scope, or with greater detail, all in Bank's discretion.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization. Borrower and each Subsidiary is
duly existing and in good standing in its state of formation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected to
cause a Material Adverse Change. Borrower represents and warrants to Bank that:
(a) Borrower's exact legal name is that indicated on the Perfection Certificate
and on the signature page hereof; and (b) Borrower is an organization of the
type, and is organized in the jurisdiction, set forth in the Perfection
Certificate; and (c) the Perfection Certificate accurately sets forth Borrower's
organizational identification number or accurately states that Borrower has
none; and (d) the Perfection Certificate accurately sets forth Borrower's place
of business, or, if more than one, its chief executive office as well as
Borrower's mailing address if different, and (e) all other information set forth
on the Perfection Certificate pertaining to Borrower is accurate and complete.
If Borrower does not now have an organizational identification number, but later
obtains one, Borrower shall forthwith notify Bank of such organizational
identification number.
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The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's organizational documents,
nor constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which or by
which it is bound in which the default could reasonably be expected to cause a
Material Adverse Change.
5.2 Collateral. Borrower has good title to the Collateral, free of Liens
except Permitted Liens. All inventory is in all material respects of good and
marketable quality, free from material defects. Borrower has no deposit account,
other than the deposit accounts with Bank and deposit accounts described in the
Perfection Certificate delivered to Bank in connection herewith. The Collateral
is not in the possession of any third party bailee (such as a warehouse). Except
as hereafter disclosed to Bank in writing by Borrower, none of the components of
the Collateral shall be maintained at locations other than as provided in the
Perfection Certificate. In the event that Borrower, after the date hereof,
intends to store or otherwise deliver any portion of the Collateral to a bailee,
then Borrower will first receive the written consent of Bank and such bailee
must acknowledge in writing that the bailee is holding such Collateral for the
benefit of Bank.
5.3 Financed Receivables. Borrower represents and warrants for each
Financed Receivable:
(a) Each Financed Receivable is an Eligible Account.
(b) Borrower is the owner with legal right to sell, transfer, assign
and encumber such Financed Receivable;
(c) The correct amount is on the Invoice Transmittal and is not
disputed;
(d) Payment is not contingent on any obligation or contract and
Borrower has fulfilled all its obligations as of the Invoice Transmittal
date;
(e) Each Financed Receivable is based on an actual sale and delivery
of goods and/or services rendered, is due to Borrower, is not past due or
in default, has not been previously sold, assigned, transferred, or pledged
and is free of any liens, security interests and encumbrances other than
Permitted Liens;
(f) There are no defenses, offsets, counterclaims or agreements for
which the Account Debtor may claim any deduction or discount;
(g) Borrower reasonably believes no Account Debtor is insolvent or
subject to any Insolvency Proceedings;
(h) Borrower has not filed or had filed against it Insolvency
Proceedings and does not anticipate any filing;
(i) Bank has the right to endorse and/ or require Borrower to endorse
all payments received on Financed Receivables and all proceeds of
Collateral; and
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(j) No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statement contained in the certificates or statement not
misleading.
5.4 Litigation. There are no actions or proceedings pending or, to the
knowledge of Borrower's Responsible Officers or legal counsel, threatened by or
against Borrower or any Subsidiary in which an adverse decision could reasonably
be expected to cause a Material Adverse Change.
5.5 No Material Deviation in Financial Statements. All consolidated
financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects Borrower's consolidated financial condition and
Borrower's consolidated results of operations. There has not been any material
deterioration in Borrower's consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
5.6 Solvency. Borrower is able to pay its debts (including trade debts) as
they mature.
5.7 Regulatory Compliance. Borrower is not an "investment company" or a
company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations X, T and U of the Federal Reserve
Board of Governors). Borrower has complied in all material respects with the
Federal Fair Labor Standards Act. Borrower has not violated any laws, ordinances
or rules, the violation of which could reasonably be expected to cause a
Material Adverse Change. None of Borrower's or any Subsidiary's properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all material taxes, except those being contested in good faith
with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to obtain
or make such consents, declarations, notices or filings would not reasonably be
expected to cause a Material Adverse Change.
5.8 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities except for Permitted Investments.
5.9 Full Disclosure. No written representation, warranty or other statement
of Borrower in any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading.
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
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6.1 Government Compliance. Borrower shall maintain its and all
Subsidiaries' legal existence and good standing in its jurisdiction of formation
and maintain qualification in each jurisdiction in which the failure to so
qualify would reasonably be expected to have a material adverse effect on
Borrower's business or operations. Borrower shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower shall deliver to Bank: (i) as soon as available, but no
later than thirty (30) days after the last day of each month, a company
prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during the period certified by a
Responsible Officer and in a form acceptable to Bank; (ii) [omitted]; (iii)
within five (5) days of the filing deadline for filing the same with the
Securities and Exchange Commission, copies of all statements, reports and
notices made available to Borrower's 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; (iv) a prompt report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000.00) or more; (v) prompt notice of any material
change in the composition of the Intellectual Property Collateral, or the
registration of any copyright, including any subsequent ownership right of
Borrower in or to any Copyright, Patent or Trademark not shown in the IP
Agreement or knowledge of an event that materially adversely affects the
value of the Intellectual Property Collateral; and (vi) budgets, sales
projections, operating plans or other financial information reasonably
requested by Bank.
(b) Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in the form of Exhibit B.
(c) Borrower will allow Bank to audit Borrower's Collateral,
including, but not limited to, Borrower's Accounts and accounts receivable,
at Borrower's expense, upon reasonable notice to Borrower; provided,
however, prior to the occurrence of an Event of Default, Borrower shall be
obligated to pay for not more than one (1) audit per year. After the
occurrence of an Event of Default, Bank may audit Borrower's Collateral,
including, but not limited to, Borrower's Accounts and accounts receivable
at Borrower's expense and at Bank's sole and exclusive discretion and
without notification and authorization from Borrower.
(d) Upon Bank's request, provide a written report respecting any
Financed Receivable, if payment of any Financed Receivable does not occur
by its due date and include the reasons for the delay.
(e) Provide Bank with, as soon as available, but no later than fifteen
(15) days following each Reconciliation Period, an aged listing of accounts
receivable and accounts payable by invoice date, in form acceptable to
Bank.
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(f) Provide Bank with, as soon as available, but no later than fifteen
(15) days following each Reconciliation Period, a Deferred Revenue report,
in form acceptable to Bank.
6.3 Taxes. Borrower shall make, and cause each Subsidiary to make, timely
payment of all material federal, state, and local taxes or assessments (other
than taxes and assessments which Borrower is contesting in good faith, with
adequate reserves maintained in accordance with GAAP) and will deliver to Bank,
on demand, appropriate certificates attesting to such payments.
6.4 Insurance. Borrower shall keep its business and the Collateral insured
for risks and in amounts, and as Bank may reasonably request. Insurance policies
shall be in a form, with companies, and in amounts that are satisfactory to
Bank. All property policies shall have a lender's loss payable endorsement
showing Bank as an additional loss payee and all liability policies shall show
Bank as an additional insured and all policies shall provide that the insurer
must give Bank at least twenty (20) days notice before canceling its policy. At
Bank's request, Borrower shall deliver certified copies of policies and evidence
of all premium payments. Proceeds payable under any policy shall, at Bank's
option, be payable to Bank on account of the Obligations. If Borrower fails to
obtain insurance as required under this Section or to pay any amount or furnish
any required proof of payment to third persons and Bank, Bank may make all or
part of such payment or obtain such insurance policies required in this Section
and take any action under the policies Bank deems prudent.
6.5 Accounts.
(a) In order to permit Bank to monitor Borrower's financial
performance and condition, Borrower, and all Borrower's Subsidiaries, shall
maintain Borrower's, and such Subsidiaries, primary depository and
operating accounts with Bank which accounts shall represent at least 85% of
the dollar value of Borrower's and such Subsidiaries accounts at all
financial institutions. Any Guarantor shall maintain all depository,
operating and securities accounts with Bank.
(b) Borrower shall identify to Bank, in writing, any bank or
securities account opened by Borrower with any institution other than Bank.
In addition, for each such account that Borrower or Guarantor at any time
opens or maintains, Borrower shall, at Bank's request and option, pursuant
to an agreement in form and substance acceptable to Bank, cause the
depository bank or securities intermediary to agree that such account is
the collateral of Bank pursuant to the terms hereunder. The provisions of
the previous sentence shall not apply to deposit accounts exclusively used
for payroll, payroll taxes and other employee wage and benefit payments to
or for the benefit of Borrower's employees.
6.6 Financial Covenants. [Omitted].
6.7 Further Assurances. Borrower shall execute any further instruments and
take further action as Bank reasonably requests to perfect or continue Bank's
security interest in the Collateral or to effect the purposes of this Agreement.
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7 NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank's prior written
consent.
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, except for Transfers (i) of inventory
in the ordinary course of business; (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; or (iii) of worn-out or obsolete equipment.
7.2 Changes in Business, Ownership, Management or Business Locations.
Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower or reasonably related thereto,
or have a material change in its ownership (other than by the sale of Borrower's
equity securities in a public offering or to venture capital investors so long
as Borrower identifies to Bank the venture capital investors prior to the
closing of the investment), or management. Borrower shall not, without at least
thirty (30) days prior written notice to Bank: (i) relocate its chief executive
office, or add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Five Thousand
Dollars ($5,000.00) in Borrower's assets or property), or (ii) change its
jurisdiction of organization, or (iii) change its organizational structure or
type, or (iv) change its legal name, or (v) change any organizational number (if
any) assigned by its jurisdiction of organization.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness,
or permit any Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance. Create, incur, or allow any Lien on any of its property,
or assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein. The Collateral may also be subject to Permitted Liens.
7.6 Distributions; Investments. (i) Directly or indirectly acquire or own
any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock.
7.7 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower, except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-affiliated Person.
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7.8 Subordinated Debt. Make or permit any payment on any Subordinated Debt,
except under the terms of the Subordinated Debt, or amend any provision in any
document relating to the Subordinated Debt, without Bank's prior written
consent.
7.9 Compliance. Become an "investment company" or a company controlled by
an "investment company", under the Investment Company Act of 1940 or undertake
as one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Advance for that 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, if the violation
could reasonably be expected to have a material adverse effect on Borrower's
business or operations or would reasonably be expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 Payment Default. Borrower fails to pay any of the Obligations when due;
8.2 Covenant Default. Borrower fails or neglects to perform any obligation
in Section 6 or violates any covenant in Section 7 or fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant or agreement contained in this Agreement, any Loan Documents, or in any
present or future agreement between Borrower and Bank;
8.3 Material Adverse Change. A Material Adverse Change occurs;
8.4 Attachment. (i) Any portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in ten (10) days; (ii) the service of process
upon Borrower seeking to attach, by trustee or similar process, any funds of
Borrower on deposit with Bank, or any entity under the control of Bank
(including a subsidiary); (iii) Borrower is enjoined, restrained, or prevented
by court order from conducting any part of its business; (iv) a judgment or
other claim becomes a Lien on a portion of Borrower's assets; or (v) a notice of
lien, levy, or assessment is filed against any of Borrower's assets by any
government agency and not paid within ten (10) days after Borrower receives
notice;
8.5 Insolvency. (i) Borrower is unable to pay its debts (including trade
debts) as they become due or otherwise becomes insolvent; (ii) Borrower begins
an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or stayed within thirty (30) days (but no Advances
shall be made before any Insolvency Proceeding is dismissed);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could result in a Material Adverse Change;
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8.7 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Two Hundred Thousand
Dollars ($200,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment);
8.8 Misrepresentations. If Borrower or any Person acting for Borrower makes
any material misrepresentation or material misstatement now or later in any
warranty or representation in this Agreement or in any writing delivered to Bank
or to induce Bank to enter this Agreement or any Loan Document;
8.9 Subordinated Debt. A default or breach occurs under any agreement
between Borrower and any creditor of Borrower that signed a subordination
agreement with Bank, or any creditor that has signed a subordination agreement
with Bank breaches any terms of the subordination agreement.
8.10 Guaranty. [Omitted].
9 BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. When an Event of Default occurs and continues Bank
may, without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
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, on terms and in any order that Bank considers advisable and
notify any Person owing Borrower money of Bank's security interest in such
funds and verify the amount of such account. Borrower shall collect all
payments in trust for Bank and, if requested by Bank, immediately deliver
the payments to Bank in the form received from the Account Debtor, with
proper endorsements for deposit;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower
shall assemble the Collateral if Bank requests and make it available as
Bank designates. Bank may enter premises where the Collateral is located,
take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or
superior to its security interest and pay all expenses incurred. Borrower
grants Bank a license to enter and occupy any of its premises, without
charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
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(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is hereby
granted a non-exclusive, royalty-free license or other right to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights
of use of any name, trade secrets, trade names, trademarks, service marks,
and advertising matter, or any similar property 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, Borrower's rights under all licenses and all franchise
agreements inure to Bank's benefit;
(g) Place a "hold" on any account maintained with Bank and/or deliver
a notice of exclusive control, any entitlement order, or other directions
or instructions pursuant to any control agreement or similar agreements
providing control of any Collateral; and
(h) Exercise all rights and remedies and dispose of the Collateral
according to the Code.
9.2 Bank Expenses; Unpaid Fees. Any amounts paid by Bank as provided herein
shall constitute Bank Expenses and are immediately due and payable, and shall
bear interest at the Default Rate and be secured by the Collateral. No payments
by Bank shall be deemed an agreement to make similar payments in the future or
Bank's waiver of any Event of Default. In addition, any amounts advanced
hereunder which are not based on Financed Receivables (including, without
limitation, unpaid fees and Finance Charges as described in Section 2.2) shall
accrue interest at the Default Rate and be secured by the Collateral.
9.3 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices regarding the safekeeping of collateral, Bank shall
not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other Person. Borrower bears all risk of loss, damage or destruction of the
Collateral.
9.4 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements are cumulative. Bank has all rights
and remedies provided under the Code, by law, or in equity. Bank's exercise of
one right or remedy is not an election, and Bank's waiver of any Event of
Default is not a continuing waiver. Bank's delay is not a waiver, election, or
acquiescence. No waiver hereunder shall be effective unless signed by Bank and
then is only effective for the specific instance and purpose for which it was
given.
9.5 Demand Waiver. Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
9.6 Default Rate. After the occurrence of an Event of Default, all
Obligations shall accrue interest at the Applicable Rate plus five percent
(5.0%) per annum (the "Default Rate").
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10 NOTICES.
Notices or demands by either party about this Agreement must be in writing
and personally delivered or sent by an overnight delivery service, by certified
mail postage prepaid return receipt requested, or by fax to the addresses listed
at the beginning of this Agreement. A party may change notice address by written
notice to the other party.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in California and Borrower accepts jurisdiction of
the courts and venue in Santa Clara County, California. NOTWITHSTANDING THE
FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK
DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO
OTHERWISE ENFORCE BANK'S RIGHTS AGAINST BORROWER OR ITS PROPERTY.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS
OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND
ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER
INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement binds and is for the benefit of
the successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or Obligations under it without Bank's prior written
consent which may be granted or withheld in Bank's discretion. Bank has 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 under this Agreement, the Loan Documents
or any related agreement.
12.2 Indemnification. Borrower hereby indemnifies, defends and holds Bank
and its officers, employees, directors and agents harmless against: (a) all
obligations, demands, claims, and liabilities asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (b) all
losses or Bank Expenses incurred, or paid by Bank from, following, or
consequential to transactions between Bank and Borrower (including reasonable
attorneys' fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.
12.3 Right of Set-Off. Borrower hereby grants to Bank, a lien, security
interest and right of setoff as security for all Obligations to Bank, whether
now existing or hereafter arising upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of Bank
(including a Bank subsidiary) or in transit to any of them. At any time after
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the occurrence and during the continuance of an Event of Default, without demand
or notice, Bank may set off the same or any part thereof and apply the same to
any liability or obligation of Borrower even though unmatured and regardless of
the adequacy of any other collateral securing the Obligations. ANY AND ALL
RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY
OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
12.4 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.
12.5 Severability of Provision. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
12.6 Amendments in Writing; Integration. All amendments to this Agreement
must be in writing signed by both Bank and Borrower. This Agreement and the Loan
Documents represent the entire agreement about this subject matter, and
supersede prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.
12.7 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, are an original, and all taken together, constitute
one Agreement.
12.8 Survival. All covenants, representations and warranties made in this
Agreement continue in full force while any Obligations remain outstanding. The
obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the
statute of limitations with respect to such claim or cause of action shall have
run.
12.9 Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (i) to Bank's
subsidiaries or affiliates in connection with their business with Borrower; (ii)
to prospective transferees or purchasers of any interest in the Advances
(provided, however, Bank shall use commercially reasonable efforts in obtaining
such prospective transferee's or purchaser's agreement to the terms of this
provision); (iii) as required by law, regulation, subpoena, or other order, (iv)
as required in connection with Bank's examination or audit; and (v) as Bank
considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank's possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (b) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.
12.10 Attorneys' Fees, Costs and Expenses. In any action or proceeding
between Borrower and Bank arising out of the Loan Documents, the prevailing
party will be entitled to recover its reasonable attorneys' fees and other
reasonable costs and expenses incurred, in addition to any other relief to which
it may be entitled.
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13 DEFINITIONS
13.1 Definitions. In this Agreement:
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Account Debtor" is as defined in the Code and shall include, without
limitation, any person liable on any Financed Receivable, such as, a guarantor
of the Financed Receivable and any issuer of a letter of credit or banker's
acceptance.
"Adjusted Quick Ratio" is the ratio of Quick Assets to Current Liabilities
minus Deferred Revenue.
"Adjustments" are all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account
Debtor for any Financed Receivable.
"Advance" is defined in Section 2.1.1.
"Advance Rate" is defined as eighty percent (80.0%), net of any offsets
related to each specific Account Debtor, or such other percentage as Bank
establishes under Section 2.1.1.
"Affiliate" is a Person that owns or controls directly or indirectly the
Person, any Person that controls or is controlled by or is under common control
with the Person, and each of that Person's senior executive officers, directors,
partners and, for any Person that is a limited liability company, that Person's
managers and members.
"Applicable Rate" is a per annum rate equal to the Prime Rate plus three
and one-half percent (3.5%) (the "Domestic Applicable Rate"); provided, however,
with respect to each Financed Receivable deemed an Eligible Account pursuant to
subclause (c) of the definition of Eligible Accounts, the Applicable Rate is a
per annum rate equal to the Prime Rate plus three and three-quarters percent
(3.75%) (the "Foreign Applicable Rate"); provided, further, that upon the
Borrower receiving at least $3,000,000 cash proceeds after the date of this
Agreement from the issuance of equity securities of the Borrower (the "$3
Million Equity Event"), each of the Domestic Applicable Rate and Foreign
Applicable Rate will decrease by 0.75% per annum, and such decreases will go
into effect on the first day of the month immediately following Bank's receipt
and approval of evidence of Borrower's satisfaction of the $3 Million Equity
Event.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
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"Borrower's Books" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
Bank is closed.
"Closing Date" is the date of this Agreement.
"Code" is the Uniform Commercial Code as adopted in California, as amended
and as may be amended and in effect from time to time.
"Collateral" is any and all properties, rights and assets of Borrower
granted by Borrower to Bank or arising under the Code, now, or in the future, in
which Borrower obtains an interest, or the power to transfer rights, as
described on Exhibit A.
"Collateral Handling Fee" is defined in Section 2.2.4.
"Collections" are all funds received by Bank from or on behalf of an
Account Debtor for Financed Receivables.
"Compliance Certificate" is attached as Exhibit B.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Current Liabilities" is all obligations and liabilities of Borrower to
Bank, plus, without duplication, the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"Default Rate" is defined in Section 9.6.
"Deferred Revenue" is all amounts received or invoiced, as appropriate, in
advance of performance under contracts and not yet recognized as revenue.
"Eligible Accounts" are billed Accounts in the ordinary course of
Borrower's business that meet all Borrower's representations and warranties in
18
Section 5.3, have been, at the option of Bank, confirmed in accordance with
Section 2.1.1 (d), and are due and owing from Account Debtors deemed
creditworthy by Bank in its sole discretion. Without limiting the fact that the
determination of which Accounts are eligible hereunder is a matter of Bank
discretion in each instance, Eligible Accounts shall not include the following
Accounts (which listing may be amended or changed in Bank's discretion with
notice to Borrower):
(a) Accounts that the Account Debtor has not paid within ninety (90)
days of invoice date;
(b) Accounts for an Account Debtor, fifty percent (50%) or more of
whose Accounts have not been paid within ninety (90) days of invoice date;
(c) Accounts for which the Account Debtor does not have its principal
place of business in the United States, unless agreed to by Bank in
writing, in its sole discretion, on a case-by-case basis;
(d) Accounts for which the Account Debtor is a federal, state or local
government entity or any department, agency, or instrumentality thereof
except for Accounts of the United States if the payee has assigned its
payment rights to Bank and the assignment has been acknowledged under the
Assignment of Claims Act of 1940 (31 U.S.C. 3727);
(e) Accounts for which Borrower owes the Account Debtor, but only up
to the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(f) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if Account Debtor's payment may be
conditional;
(g) Accounts for which the Account Debtor is Borrower's Affiliate,
officer, employee, or agent;
(h) Accounts in which the Account Debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to
an Insolvency Proceeding, or becomes insolvent, or goes out of business;
(i) Accounts for which Bank reasonably determines collection to be
doubtful or any Accounts which are unacceptable to Bank for any reason.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"Events of Default" are set forth in Article 8.
"Facility Amount" is Five Hundred Thousand Dollars ($500,000).
"Facility Fee" is defined in Section 2.2.2.
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"Finance Charges" is defined in Section 2.2.3.
"Financed Receivables" are all those Eligible Accounts, including their
proceeds which Bank finances and makes an Advance, as set forth in Section
2.1.1. A Financed Receivable stops being a Financed Receivable (but remains
Collateral) when the Advance made for the Financed Receivable has been fully
paid.
"Financed Receivable Balance" is the total outstanding gross face amount,
at any time, of any Financed Receivable.
"GAAP" is generally accepted accounting principles.
"Good Faith Deposit" is defined in Section 2.2.8.
"Guarantor" [omitted].
"Indebtedness" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" is any proceeding by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Invoice Transmittal" shows Eligible Accounts which Bank may finance and,
for each such Account, includes the Account Debtor's, name, address, invoice
amount, invoice date and invoice number.
"IP Agreement" is a certain Intellectual Property Security Agreement
executed and delivered by Borrower to Bank.
"Intellectual Property Collateral" is a defined in the IP Agreement.
"Lockbox" is defined in Section 2.2.7.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower, and any other present or future agreement
between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated.
20
"Material Adverse Change" is: (i) A material impairment in the perfection
or priority of Bank's security interest in the Collateral or in the value of
such Collateral; (ii) a material adverse change in the business, operations, or
condition (financial or otherwise) of Borrower; or (iii) a material impairment
of the prospect of repayment of any portion of the Obligations.
"Maturity Date" is 364 days from the date of this Agreement; provided that
the Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, subject to Borrower paying all fees and expenses provided for herein
(including, without limitation, any additional Facility Fee) and subject,
further, to each party's right to terminate this Agreement pursuant to Section
2.1.1 (g).
"Minimum Finance Charge" [omitted].
"Obligations" are all advances, liabilities, obligations, covenants and
duties owing, arising, due or payable by Borrower to Bank now or later under
this Agreement or any other document, instrument or agreement, account
(including those acquired by assignment) primary or secondary, such as all
Advances, Finance Charges, Facility Fee, Collateral Handling Fee, interest,
fees, expenses, professional fees and attorneys' fees, or other amounts now or
hereafter owing by Borrower to Bank.
"Perfection Certificate" is a certain representations and warranties letter
agreement previously executed and delivered by Borrower to Bank in connection
with this Agreement.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Subordinated Debt;
(c) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(d) Indebtedness secured by Permitted Liens.
"Permitted Investments" are: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States or its agency or any state
maturing within 1 year from its acquisition, (ii) commercial paper maturing no
more than 1 year after its creation and having the highest rating from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., (iii) Bank's
certificates of deposit issued maturing no more than 1 year after issue, (iv)
any other investments administered through Bank.
"Permitted Liens" are:
(a) Liens arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for
which Borrower maintains adequate reserves on its Books, if they have no
priority over any of Bank's security interests;
21
(c) Purchase money Liens securing no more than $400,000 in the
aggregate amount outstanding (i) on equipment acquired or held by Borrower
incurred for financing the acquisition of the equipment, or (ii) existing
on equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the equipment;
(d) Leases or subleases and non-exclusive licenses or sublicenses
granted in the ordinary course of Borrower's business, if the leases,
subleases, licenses and sublicenses permit granting Bank a security
interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (d), but any
extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the
indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Prime Rate" is the greater of (i) four and one-quarter percent (4.25%) or
(ii) Bank's most recently announced "prime rate," even if it is not Bank's
lowest rate.
"Reconciliation Day" is the last calendar day of each month.
"Reconciliation Period" is each calendar month.
"Responsible Officer" is each of the Chief Executive Officer, President,
Chief Financial Officer and Controller of Borrower.
"Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (pursuant to a subordination agreement entered into between Bank,
Borrower and the subordinated creditor), on terms acceptable to Bank.
"Subsidiary" is any Person, corporation, partnership, limited liability
company, joint venture, or any other business entity of which more than 50% of
the voting stock or other equity interests is owned or controlled, directly or
indirectly, by the Person or one or more Affiliates of the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus (i) any amounts attributable to (a)
goodwill, (b) intangible items including unamortized debt discount and expense,
patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, minus (ii) Total Liabilities.
"Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the State of California as of
the date first above written.
BORROWER:
VIKING SYSTEMS, INC.
By /s/ Thomas B. Marsh
Name: Thomas B. Marsh
Title: CEO
BANK:
SILICON VALLEY BANK
By /s/ Robert Anderson
Name: Robert Anderson
Title: Vice President
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EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods, equipment, inventory, contract rights or rights to payment of
money, leases, license agreements, franchise agreements, general intangibles
(including payment intangibles), accounts (including health-care receivables),
documents, instruments (including any promissory notes), chattel paper (whether
tangible or electronic), cash, deposit accounts, fixtures, letters of credit
rights (whether or not the letter of credit is evidenced by a writing),
commercial tort claims, securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and
Any copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work, whether
published or unpublished, now owned or later acquired; any patents, trademarks,
service marks and applications therefor; trade styles, trade names, any trade
secret rights, including any rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; or any claims for damages by way of any past,
present and future infringement of any of the foregoing; and
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,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
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EXHIBIT B
SILICON VALLEY BANK
SPECIALTY FINANCE DIVISION
Compliance Certificate
I, as authorized officer of Viking Systems, Inc. ("Borrower") certify under
the Loan and Security Agreement (the "Agreement") between Borrower and Silicon
Valley Bank ("Bank") as follows (all capitalized terms used herein shall have
the meaning set forth in the Agreement):
Borrower represents and warrants for each Financed Receivable:
Each Financed Receivable is an Eligible Account.
Borrower is the owner with legal right to sell, transfer, assign and encumber
such Financed Receivable;
The correct amount is on the Invoice Transmittal and is not disputed;
Payment is not contingent on any obligation or contract and Borrower has
fulfilled all its obligations as of the Invoice Transmittal date;
Each Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted Liens;
There are no defenses, offsets, counterclaims or agreements for which the
Account Debtor may claim any deduction or discount;
It reasonably believes no Account Debtor is insolvent or subject to any
Insolvency Proceedings;
It has not filed or had filed against it Insolvency Proceedings and does not
anticipate any filing;
Bank has the right to endorse and/ or require Borrower to endorse all payments
received on Financed Receivables and all proceeds of Collateral.
No representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained in
the certificates or statement not misleading.
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Additionally, Borrower represents and warrants as follows:
Borrower and each Subsidiary is duly existing and in good standing in its state
of formation and qualified and licensed to do business in, and in good standing
in, any state in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change. The execution,
delivery and performance of the Loan Documents have been duly authorized, and do
not conflict with Borrower's organizational documents, nor constitute an event
of default under any material agreement by which Borrower is bound. Borrower is
not in default under any agreement to which or by which it is bound in which the
default could reasonably be expected to cause a Material Adverse Change.
Borrower has good title to the Collateral, free of Liens except Permitted Liens.
All inventory is in all material respects of good and marketable quality, free
from material defects.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted except where the failure to obtain or make such consents,
declarations, notices or filings would not reasonably be expected to cause a
Material Adverse Change.
All representations and warranties in the Agreement are true and correct in all
material respects on this date, and the Borrower represents that there is no
existing Event of Default. Sincerely,
Signature:
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Title:
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Date:
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834216.1
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