Exhibit 10.20
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of December 8,
1997, by and between SILICON VALLEY BANK, a California-chartered bank
("Bank"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, California 95054 and with a loan production office located at
Wellesley Office Park, 40 William Street, Suite 350, Wellesley, Massachusetts
02181, doing business under the name "Silicon Valley East" ("Bank") and
BLUESTONE SOFTWARE, INC., a Delaware corporation with its principal place of
business at 1000 Briggs Road, Mount Laurel, New Jersey 08054-4101
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the
rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed
by Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the
Committed Revolving Line.
"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.
"Borrowing Base" means an amount equal to (i) Eighty percent
(80%) of Eligible Accounts as determined by Bank with reference to the
most recent Borrowing Base Certificate delivered by Borrower, plus (ii)
an amount equal to One Hundred percent (100.0%) of any Certificate of
Deposit maintained at the Bank, and specifically pledged to Bank, up to
$400,000.00.
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"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.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A
attached hereto.
"Committed Revolving Line" means a credit extension of up to
One Million Seven Hundred Fifty Thousand Dollars ($1,750,000.00).
"Committed Equipment Line" means a credit extension of up to
Five Hundred Thousand Dollars ($500,000.00).
"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.
"Credit Extension" means each Advance, Equipment Advance, or
any other extension of credit by Bank for the benefit of Borrower
hereunder.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of
Borrower's representations and warranties to Bank set forth in Section
5.4. Unless otherwise agreed to by Bank in writing, Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has failed to
pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts outstanding at any time the
account debtor has failed to pay within ninety (90) days of
invoice date;
(c) Accounts with respect to an account debtor,
including Affiliates, whose total obligations to Borrower
exceed twenty-five percent (25%) of all Accounts, to the
extent such obligations exceed the aforementioned percentage,
except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor
does not have its principal place of business in the United
States;
(e) Accounts with respect to which the account debtor
is a federal, state, or local governmental entity or any
department, agency, or instrumentality thereof, except for
those Accounts of the United States or any department, agency
or instrumentality thereof as to which the payee has
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assigned its rights to payment thereof to Bank and the
assignment has been acknowledged, pursuant to the Assignment
of Claims Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable
to the account debtor, but only to the extent of any amounts
owing to the account debtor (sometimes referred to as "contra"
accounts, e.g. accounts payable, customer deposits, credit
accounts etc.);
(g) Accounts generated by demonstration or
promotional equipment, or with respect to which goods are
placed on consignment, guaranteed sale, sale or return, sale
on approval, bill and hold, or other terms by reason of which
the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor
is an Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as
to which Bank believes, in its sole discretion, that there may
be a basis for dispute (but only to the extent of the amount
subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in
Section 2.1.2.
"Equipment Availability End Date" has the meaning set forth in
Section 2.1.2.
"Equipment Maturity Date" is defined in Section 2.1.2.
"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.
"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.
"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.
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"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"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.
"Liquid Assets" shall mean cash, or cash equivalents (as
determined under GAAP) plus the undrawn amounts under the Committed
Revolving Line.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, 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.
"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.
"Maturity Date" means the later of the Equipment Maturity Date
or the Revolving Maturity Date.
"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.
"Payment Date" means the first calendar day of each month
commencing on the first such date after the Closing Date and ending on
the Revolving Maturity Date.
"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;
(e) In addition to the foregoing, Indebtedness
in the amount of $150,000.00 incurred to purchase Equipment
not financed by Bank; and
(f) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
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(b) (i) marketable direct obligations issued
or unconditionally guaranteed by the United States of America
or any agency or any State thereof maturing within one (1)
year from the date of acquisition thereof, (ii) commercial
paper maturing no more than one (1) year from the date of
creation thereof and currently having 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;
(e) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured
by Liens of the type described in clauses (a) through (c)
above, PROVIDED that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution,
public benefit corporation, firm, joint stock company, estate, entity
or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
"Responsible Officer" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller
of Borrower.
"Revolving Maturity Date" shall mean one day prior to the date
which is one year from the Closing Date.
"Schedule" means the schedule of exceptions attached hereto,
if any.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms
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.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries MINUS,
without duplication, (i) the sum of any amounts attributable to (a)
goodwill,
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(b) intangible items such as unamortized debt discount and expense,
patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not
already deducted from assets, AND (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date
as of which the amount thereof shall be determined, all obligations
that should, in accordance with GAAP be classified as liabilities on
the consolidated balance sheet of Borrower, including in any event all
Indebtedness, but specifically excluding Subordinated Debt.
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"/ "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
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed the Committed Revolving Line or the Borrowing Base,
whichever is less. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of EXHIBIT B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1 to
Borrower's deposit account with Bank.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 EQUIPMENT ADVANCES.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through six (6) months following the
Closing Date (the "Equipment Availability End Date"), Bank agrees to make
advances (each an "Equipment Advance" and collectively, the "Equipment
Advances") to Borrower in an aggregate outstanding amount not to exceed the
Committed Equipment Line. To evidence the Equipment Advance or Equipment
Advances, Borrower shall deliver to Bank, at the time of each Equipment Advance
request, an invoice for the equipment to be purchased. The Equipment Advances
shall be used only to purchase Equipment or refinance Equipment purchased after
January 1, 1997 and shall not exceed One Hundred Percent (100%) of the invoice
amount of such equipment approved from time to time by Bank, excluding taxes,
shipping, warranty charges, freight discounts and installation expense. Software
may, however, constitute up to twenty-five percent (25.0%) of each Equipment
Advance aggregate Equipment Advances.
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(b) Interest shall accrue from the date of each Equipment
Advance at a per annum rate equal to One and One Half of One percentage points
(1.50%) above the Prime Rate. and shall be payable monthly for each month
through the month in which the Equipment Availability End Date falls. Any
Equipment Advances that are outstanding on the Equipment Availability End Date
will be payable in thirty six (36) equal monthly installments of principal, plus
all accrued interest, beginning on the Payment Date of each month following the
Equipment Availability End Date and ending on the date which is thirty six (36)
months after the Equipment Availability End Date (the "Equipment Maturity
Date"). Equipment Advances, once repaid, my not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Pacific time one (1)
Business Day before the day on which the Equipment Advance is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a copy of the
invoice for the Equipment to be financed.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b),
any Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to One and One Half percentage point (1.50%) above the Prime
Rate.
(b) DEFAULT RATE. All Obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate equal to five
(5) percentage points above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable
on each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number _____________________ for
payments of principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank
has made against Borrower's accounts. Any such debits against Borrower's
accounts in no way shall be deemed a set-off. 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. In the event the Prime Rate is changed
from time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, 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 3:00 p.m. 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
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instead be due on the next Business Day, and additional fees or interest, as the
case may be, shall accrue and be payable for the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) COMMITTED REVOLVING LINE FACILITY FEE. As
compensation for the Bank's maintenance of sufficient funds available
for such purpose, the Bank shall have earned a Committed Revolving Line
Facility Fee (so referred to herein), which fee shall be paid as of the
Closing Date, in an amount equal to One Half of One percent (0.50%) of
the Committed Revolving Line. The Borrower shall not be entitled to any
credit, rebate or repayment of any Committed Revolving Line Facility
Fee previously earned by the Bank pursuant to this Section
notwithstanding any termination of the within Agreement, or suspension
or termination of the Bank's obligation to make loans and advances
hereunder;
(b) COMMITTED EQUIPMENT LINE FACILITY FEE. As
compensation for the Bank's maintenance of sufficient funds available
for such purpose, the Bank shall have earned a Committed Equipment Line
Facility Fee, which fee shall be paid as of the Closing Date, in an
amount equal to Two Thousand Five Hundred Dollars ($2,500.00);
(c) 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;
(d) 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.
2.6 ADDITIONAL COSTS. In case any law, 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
any loans, Bank shall notify Borrower thereof. 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.
2.7 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 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.
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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 opinion of Borrower's counsel;
(d) Warrant Purchase Agreement;
(e) Antidilution Agreement;
(f) Registration Rights Agreement;
(g) financing statements (Forms UCC-1);
(h) insurance certificate;
(i) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof;
(j) Certificate of Foreign Qualification (if applicable);
and
(k) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation
of Bank to make each Credit Extension, including the initial Credit Extension,
is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as
of the date of such Payment/Advance Form and on the effective date of
each Credit Extension as though made at and as of each such date, and
no Event of Default shall have occurred and be continuing, or would
result from such Credit Extension. 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 Section3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt 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 Bank may place a "hold" on any Deposit Account
pledged as Collateral
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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 interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 CERTIFICATE OF DEPOSIT COLLATERAL. Borrower grants to Bank as
additional security for the purpose of securing the Obligations a valid, first
priority security interest in a certain certificate of deposit, maintained with
the Bank, identified as CD# ___________, in the original principal amount of
$400,000.00, as may be substituted or replaced (the "CERTIFICATES OF DEPOSIT").
The Certificate of Deposit may not be terminated, or redeemed until all
Obligations hereunder are paid in full, and this Agreement is terminated.
4.4 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 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, any
state in which the conduct of its business or its ownership of property requires
that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound Borrower is
not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona
fide existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
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
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in which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
5.8 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. 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.
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:
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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 each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within twenty-five
(25) 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 ninety
(90) days after the end of Borrower's fiscal year, audited consolidated
financial statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more; and (d) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of EXHIBIT C hereto, together with aged
listings of accounts receivable.
Within twenty-five (25) 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 substantially the form of
EXHIBIT D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing; provided however, should the first audit of Borrower's Accounts
be satisfactory to the Bank, as determined in the sole discretion of the Bank,
such audits will be conducted no more often than every twelve (12) months unless
an Event of Default has occurred and is continuing.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than One
Hundred Thousand Dollars ($100,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is (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.
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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 twenty
(20) 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 PRINCIPAL DEPOSITORY. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 TANGIBLE NET WORTH. Borrower shall maintain, as of the last day
of each calendar month, a Tangible Net Worth of not less than One Million
Dollars ($1,000,000.00); provided however, the Borrower shall evidence a
Tangible Net Worth of not less than One Million Five Hundred Thousand Dollars
($1,500,000.00) for the third quarter of fiscal year ending 1997.
6.9 LIQUID ASSETS. Borrower shall maintain, as of the last day of
each calendar month, Liquid Assets of not less than One Million Dollars
($1,000,000.00)
6.10 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit 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 Advances,
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 non-exclusive 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; (iv)
of worn-out or obsolete Equipment; or (v) Equipment whose original cost was not
greater than $100,000.00, in the aggregate.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, 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. Borrower will
not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations.
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7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person except with
respect to acquisitions of stock or property for a purchase price of not greater
than $250,000.00, in the aggregate, provided no indebtedness is assumed in
connection with such transaction, and provided that the Borrower will,
immediately after the consummation of such transaction, continue to comply with
all terms and conditions of this Agreement.
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, other than dividends required to be made to shareholders
in an amount sufficient to cover the tax liability of such shareholders on
account of the attribution of the Borrower's income to such shareholder provided
that such payment does not result (or would result solely as a result of the
passage of time) in an Event of Default.
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. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 SUBORDINATED DEBT. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of 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.
7.11 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 Advance 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.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of
the Obligations.
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8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8 or 6.9 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; 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 Advances
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 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 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 JUDGMENTS. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate 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.
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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;
(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) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a
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, 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.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and
uring 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
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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. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. 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, and 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 Committed Revolving Line 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 as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
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If to Borrower Bluestone Software, Inc.
1000 Briggs Road
Mount Laurel, New Jersey 08054-4101
Attn: Mr. Enrico Ballezzi, CFO
FAX: (609) 727-3833
If to Bank Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02181
Attn: Pamela J. Aldsworth, Vice President
FAX: (781) 431-9906
with a copy to: Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; PROVIDED, HOWEVER, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall , indemnify ,defend, protect
and hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
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
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transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation 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.
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 Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to 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, regulations, 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 COUNTERSIGNATURE. This Agreement shall become effective only
when it shall have been executed by Borrower and Bank (provided, however, in no
event shall this Agreement become effective until signed by an officer of Bank
in California).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BLUESTONE SOFTWARE, INC.
By:/s/ E.J. Ballezzi
---------------------------------------------
Title: Chief Financial Officer
------------------------------------------
SILICON VALLEY BANK, d/b/a SILICON VALLEY
EAST
By:/s/ Pamela Aldsworth
---------------------------------------------
Name: Pamela Aldsworth
-------------------------------------------
Title: Vice President
------------------------------------------
SILICON VALLEY BANK
By:/s/ Michael Jordan
---------------------------------------------
Name: Michael Jordan
-------------------------------------------
Title: Loan Docs Officer
------------------------------------------
(Signed in Santa Clara County, California)
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