Exhibit 10.1
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT") dated as of May 24,
2006 (the "EFFECTIVE DATE") between SILICON VALLEY BANK, a California
corporation and with a loan production office located at 100 Matsonford Road,
Building 5, Suite 555, Radnor, Pennsylvania 19087 ("BANK"), and VOXWARE, INC., a
Delaware corporation ("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.
Capitalized terms not otherwise defined 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 meaning 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 outstanding principal amount of all Credit Extensions and accrued and
unpaid interest thereon as and when due in accordance with this Agreement.
2.1.1 REVOLVING ADVANCES.
(a) AVAILABILITY. Subject to the terms and conditions of this
Agreement, Bank shall make Advances not exceeding the Availability Amount.
Amounts borrowed under the Revolving Line may be repaid and, prior to the
Revolving Line Maturity Date, reborrowed, subject to the applicable terms and
conditions precedent herein.
(b) TERMINATION; REPAYMENT. The Revolving Line terminates on
the Revolving Line Maturity Date, when the principal amount of all Advances, the
unpaid interest thereon, and all other Obligations relating to the Revolving
Line shall be immediately due and payable.
2.1.2 LETTERS OF CREDIT SUBLIMIT.
(a) As part of the Revolving Line, Bank shall issue or have
issued Letters of Credit for Borrower's account. The face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) may not exceed One Million Dollars ($1,000,000.00),
inclusive of Credit Extensions relating to Sections 2.1.3 and 2.1.4. Such
aggregate amounts utilized hereunder shall at all times reduce the amount
otherwise available for Advances under the Revolving Line. If, on the Revolving
Maturity Date, there are any outstanding Letters of Credit, then on such date
Borrower shall provide to Bank cash collateral in an amount equal to 105% of the
face amount of all such Letters of Credit plus all interest, fees, and costs due
or to become due in connection therewith (as estimated by Bank in its good faith
business judgment), to secure all of the Obligations relating to said Letters of
Credit. All Letters of Credit shall be in form and substance acceptable to Bank
in its sole discretion and shall be subject to the terms and conditions of
Bank's standard Application and Letter of Credit Agreement (the "LETTER OF
CREDIT APPLICATION"). Borrower agrees to execute any further documentation in
connection with the Letters of Credit as Bank may reasonably request. Borrower
further agrees to be bound by the regulations and interpretations of the issuer
of any Letters of Credit guarantied by Bank and opened for Borrower's account or
by Bank's interpretations of any Letter of Credit issued by Bank for Borrower's
account, and Borrower understands and agrees that Bank shall not be liable for
any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto.
(b) The obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute, unconditional, and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, such Letters of Credit, and the Letter of Credit Application.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a Foreign Currency. If a demand for payment is made under any such
Letter of Credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus fees and charges in
connection therewith such as wire, cable, SWIFT or similar charges) in Dollars
at the then-prevailing rate of exchange in San Francisco, California, for sales
of the Foreign Currency for transfer to the country issuing such Foreign
Currency.
(d) To guard against fluctuations in currency exchange rates,
upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank
shall create a reserve (the "LETTER OF CREDIT RESERVE") under the Revolving Line
in an amount equal to ten percent (10%) of the face amount of such Letter of
Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from
time to time to account for fluctuations in the exchange rate. The availability
of funds under the Revolving Line shall be reduced by the amount of such Letter
of Credit Reserve for as long as such Letter of Credit remains outstanding.
2.1.3 FOREIGN EXCHANGE SUBLIMIT. As part of the Revolving Line,
Borrower may enter into foreign exchange contracts with Bank under which
Borrower commits to purchase from or sell to Bank a specific amount of Foreign
Currency (each, a "FX FORWARD CONTRACT") on a specified date (the "SETTLEMENT
DATE"). FX Forward Contracts shall have a Settlement Date of at least one (1) FX
Business Day after the contract date and shall be subject to a reserve of ten
percent (10%) of each outstanding FX Forward Contract in a maximum aggregate
amount equal to One Million Dollars ($1,000,000.00) (the "FX RESERVE"),
inclusive of Credit Extensions relating to Sections 2.1.2 and 2.1.4. The
aggregate amount of FX Forward Contracts at any one time may not exceed ten (10)
times the amount of the FX Reserve.
2.1.4 CASH MANAGEMENT SERVICES SUBLIMIT. Borrower may use up to One
Million Dollars ($1,000,000.00) (the "CASH MANAGEMENT SERVICES SUBLIMIT"),
inclusive of Credit Extensions relating to Sections 2.1.2 and 2.1.3 of the
Revolving Line for Bank's cash management services which may include merchant
services, direct deposit of payroll, business credit card, and check cashing
services identified in Bank's various cash management services agreements
(collectively, the "CASH MANAGEMENT SERVICES"). Any amounts Bank pays on behalf
of Borrower or any amounts that are not paid by Borrower for any Cash Management
Services will be treated as Advances under the Revolving Line and will accrue
interest at the interest rate applicable to Advances.
2.1.5 TERM LOAN.
(a) AVAILABILITY. Bank shall make one (1) term loan available
to Borrower in an amount up to the Term Loan on or before March 31, 2007,
subject to the satisfaction of the terms and conditions of this Agreement.
(b) INTEREST PAYMENTS. Commencing on the first Payment Date of
the month following the month in which the Funding Date occurs (or commencing on
the Funding Date if the Funding Date is the first calendar day of the month),
Borrower shall make monthly payments of interest at the rate set forth in
Section 2.3(a)(ii).
(c) REPAYMENT. Commencing on April 1, 2007, and continuing on
the Payment Date of each month thereafter, Borrower shall repay the Term Loan in
(i) thirty (30) equal installments of principal, plus (ii) monthly payments of
accrued interest (the "TERM LOAN PAYMENT"). Borrower's final Term Loan Payment,
due on the Term Loan Maturity Date, shall include all outstanding principal and
accrued and unpaid interest under the Term Loan.
2.2 OVERADVANCES. If, at any time, the Credit Extensions under
Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed the lesser of either (a) the
Revolving Line or (b) the Borrowing Base, Borrower shall immediately pay to Bank
in cash such excess.
2.3 PAYMENT OF INTEREST ON THE CREDIT EXTENSIONS.
(a) INTEREST RATE.
(i) ADVANCES. Subject to Section 2.3(b), the principal
amount outstanding under the Revolving Line shall accrue interest at a floating
per annum rate equal to the one and one-quarter of one percentage points (1.25%)
above the Prime Rate (which shall be reduced to one-half of one percentage
points (.50%) above the Prime Rate, upon the occurrence of the Profitability
Event), which interest shall be payable monthly in accordance with Section
2.3(f) below.
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(ii) TERM LOAN. Subject to Section 2.3(b), the
principal amount outstanding under the Term Loan shall accrue interest at a
floating per annum rate equal to one and three-quarters of one percentage points
(1.75%) above the Prime Rate, which interest shall be payable monthly in
accordance with Section 2.3(f) below.
(b) DEFAULT RATE. Immediately upon the occurrence and during
the continuance of an Event of Default, Obligations shall bear interest at a
rate per annum which is five percentage points above the rate effective
immediately before the Event of Default (the "DEFAULT RATE"). Payment or
acceptance of the increased interest rate provided in this Section 2.3(b) is not
a permitted alternative to timely payment and shall not constitute a waiver of
any Event of Default or otherwise prejudice or limit any rights or remedies of
Bank.
(c) ADJUSTMENT TO INTEREST RATE. Changes to the interest rate
of any Credit Extension based on changes to the Prime Rate shall be effective on
the effective date of any change to the Prime Rate and to the extent of any such
change.
(d) 360-DAY YEAR. Interest shall be computed on the basis of a
360-day year for the actual number of days elapsed.
(e) DEBIT OF ACCOUNTS. Bank may debit any of Borrower's
deposit accounts, including the Designated Deposit Account, for principal and
interest payments or any other amounts Borrower owes Bank when due. These debits
shall not constitute a set-off.
(f) PAYMENTS. Unless otherwise provided, interest is payable
monthly on the Payment Date of each month. Payments of principal and/or interest
received after 12:00 noon Eastern time are considered received at the opening of
business on the next Business Day. When a payment is due on a day that is not a
Business Day, the payment is due the next Business Day and additional fees or
interest, as applicable, shall continue to accrue.
2.4 FEES. Borrower shall pay to Bank:
(a) COMMITMENT FEE. A fully earned, non-refundable commitment
fee of Twenty-Seven Thousand Dollars ($27,000.00) due on the Effective Date, but
payable as follows: (i) Fifteen Thousand Dollars ($15,000.00) on the Effective
Date, and (ii) Twelve Thousand Dollars ($12,000.00) on the earlier to occur of
(x) the occurrence of an Event of Default; (y) May 24, 2007; and (z) the
termination of this Agreement by the Borrower.
(b) BANK EXPENSES. All Bank Expenses (including reasonable
attorneys' fees and expenses, plus expenses, for documentation and negotiation
of this Agreement) incurred through and after the Effective Date, when due.
(c) GOOD FAITH DEPOSIT. Borrower has paid to Bank a Good Faith
Deposit of Ten Thousand Dollars ($10,000.00) (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, shall be applied towards the
Commitment Fee.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. Bank's obligation
to make the initial Credit Extension 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:
(a) Duly executed original signatures to the Loan Documents to
which it is a party;
(b) Duly executed original signatures to the Control
Agreement[s];
(c) Borrower shall have delivered its Operating Documents and
a good standing certificate of Borrower certified by the Secretary of State of
the State of Delaware as of a date no earlier than thirty (30) days prior to the
Effective Date;
(d) Duly executed original signatures to the completed
Borrowing Resolutions for Borrower;
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(e) Bank shall have received certified copies, dated as of a
recent date, of financing statement searches, as Bank shall request, accompanied
by written evidence (including any UCC termination statements) that the Liens
indicated in any such financing statements either constitute Permitted Liens or
have been or, in connection with the initial Credit Extension, will be
terminated or released;
(f) Borrower shall have delivered a legal opinion of
Borrower's counsel dated as of the Effective Date together with the duly
executed original signatures thereto;
(g) Duly executed original signatures to the ratification of
guaranty and security agreement (together with the completed Borrowing
Resolution) for Guarantor;
(h) Borrower shall have delivered evidence satisfactory to
Bank that the insurance policies required by Section 6.5 hereof are in full
force and effect, together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements in favor of Bank; and
(i) Borrower shall have paid the fees and Bank Expenses then
due as specified in Section 2.4 hereof.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Bank's
obligations to make each Credit Extension, including the initial Credit
Extension, is subject to the following:
(a) except as otherwise provided in Section 3.4(a), timely
receipt of an executed Payment/Advance Form;
(b) the representations and warranties in Section 5 shall be
true in all material respects on the date of the Payment/Advance Form and on the
Funding Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, and no Default or Event of Default shall have occurred and be
continuing or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties in Section 5 remain true in all material respects; provided, however,
that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and
(c) in Bank's sole discretion, there has not been any material
impairment in the general affairs, management, results of operation, financial
condition or the prospect of repayment of the Obligations, or there has not been
any material adverse deviation by Borrower from the most recent business plan of
Borrower presented to and accepted by Bank.
3.3 COVENANT TO DELIVER.
Borrower agrees to deliver to Bank each item required to be delivered
to Bank under this Agreement as a condition to any Credit Extension. Borrower
expressly agrees that the extension of a Credit Extension prior to the receipt
by Bank of any such item shall not constitute a waiver by Bank of Borrower's
obligation to deliver such item, and any such extension in the absence of a
required item shall be in Bank's sole discretion.
3.4 PROCEDURES FOR BORROWING. Subject to the prior satisfaction of all
other applicable conditions to the making of an Advance set forth in this
Agreement, to obtain an Advance (other than Advances under Sections 2.1.2 or
2.1.4), Borrower shall notify Bank (which notice shall be irrevocable) by
electronic mail, facsimile, or telephone by 12:00 noon Eastern time on the
Funding Date of the Advance. Together with any such electronic or facsimile
notification, Borrower shall deliver to Bank by electronic mail or facsimile a
completed Payment/Advance Form executed by a Responsible Officer or his or her
designee. Bank may rely on any telephone notice given by a person whom Bank
believes is a Responsible Officer or designee. Bank shall credit Advances to the
Designated Deposit Account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due.
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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, a
continuing security interest in, and pledges to Bank, the Collateral, wherever
located, whether now owned or hereafter acquired or arising, and all proceeds
and products thereof. Borrower represents, warrants, and covenants that the
security interest granted herein is and shall at all times continue to be a
first priority perfected security interest in the Collateral (subject only to
Permitted Liens that may have superior priority to Bank's Lien under this
Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the general 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 reasonably satisfactory to Bank.
If this Agreement is terminated, Bank's Lien in the Collateral shall
continue until the Obligations (other than inchoate indemnity obligations) are
repaid in full in cash. Upon payment in full in cash of the Obligations and at
such time as Bank's obligation to make Credit Extensions has terminated, Bank
shall, at Borrower's sole cost and expense, release its Liens in the Collateral
and all rights therein shall revert to Borrower.
4.2 AUTHORIZATION TO FILE FINANCING STATEMENTS. Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions to perfect or protect Bank's interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION. Borrower and each of its
Subsidiaries are duly existing and in good standing, as Registered Organizations
in their respective jurisdictions of formation and are qualified and licensed to
do business and are in good standing in any jurisdiction in which the conduct of
their business or their ownership of property requires that they be qualified
except where the failure to do so could not reasonably be expected to have a
material adverse effect on Borrower's business. In connection with this
Agreement, Borrower has delivered to Bank a completed certificate signed by
Borrower (the "Perfection Certificate"). 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; (b) Borrower is an organization of
the type and is organized in the jurisdiction set forth in the Perfection
Certificate; (c) the Perfection Certificate accurately sets forth Borrower's
organizational identification number or accurately states that Borrower has
none; (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 than its chief executive office); (e) Borrower
(and each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete. If Borrower is not now a
Registered Organization but later becomes one, Borrower shall promptly notify
Bank of such occurrence and provide Bank with Borrower's organizational
identification number.
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 it is
a party or by which it is bound in which the default could reasonably be
expected to have a material adverse effect on Borrower's business.
5.2 COLLATERAL. Borrower has good title to, has rights in, and the
power to transfer each item of the Collateral upon which it purports to grant a
Lien hereunder, free and clear of any and all Liens except Permitted Liens.
Borrower has no deposit accounts other than the deposit accounts with Bank, the
deposit accounts, if any, described in the Perfection Certificate delivered to
Bank in connection herewith, or of which Borrower has given Bank notice and
taken such actions as are necessary to give Bank a perfected security interest
therein. The Accounts are bona fide, existing obligations of the Account
Debtors.
The Collateral is not in the possession of any third party bailee (such
as a warehouse) except as otherwise provided in the Perfection Certificate. None
of the components of the Collateral shall be maintained at locations other than
as provided in the Perfection Certificate or as Borrower has given Bank notice
pursuant to Section 7.2. In
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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 execute and deliver a
bailee agreement in form and substance satisfactory to Bank in its sole
discretion.
All Inventory is in all material respects of good and marketable
quality, free from material defects.
Borrower is the sole owner of its intellectual property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. Each patent is valid and enforceable, and no part of the intellectual
property has been judged invalid or unenforceable, in whole or in part, and to
the best of Borrower's knowledge, no claim has been made that any part of the
intellectual property violates the rights of any third party except to the
extent such claim could not reasonably be expected to have a material adverse
effect on Borrower's business. 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. Borrower shall
provide written notice to Bank within ten (10) days of entering or becoming
bound by any such license or agreement which is reasonably likely to have a
material impact on Borrower's business or financial condition (other than
over-the-counter software that is commercially available to the public).
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 (such consent or authorization may
include a licensor's agreement to a contingent assignment of the license to Bank
if Bank determines that is necessary in its good faith judgment), whether now
existing or entered into in the future.
5.3 ACCOUNTS RECEIVABLE. For any Eligible Account in any Borrowing
Base Certificate, all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing such Eligible Accounts are
and shall be true and correct and all such invoices, instruments and other
documents, and all of Borrower's Books are genuine and in all respects what they
purport to be. All sales and other transactions underlying or giving rise to
each Eligible Account shall comply in all material respects with all applicable
laws and governmental rules and regulations. Borrower has no knowledge of any
actual or imminent Insolvency Proceeding of any Account Debtor whose accounts
are an Eligible Account in any Borrowing Base Certificate. To the best of
Borrower's knowledge, all signatures and endorsements on all documents,
instruments, and agreements relating to all Eligible Accounts are genuine, and
all such documents, instruments and agreements are legally enforceable in
accordance with their terms.
5.4 LITIGATION. There are no actions or proceedings pending or,
to the knowledge of the Responsible Officers, threatened in writing by or
against Borrower or any of its Subsidiaries involving more than Fifty Thousand
Dollars ($50,000.00).
5.5 NO MATERIAL DEVIATION IN FINANCIAL STATEMENTS. All
consolidated financial statements for Borrower and any of its Subsidiaries
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. The fair salable value of Borrower's assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; Borrower is not left with unreasonably small capital after the
transactions in this Agreement; and 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 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 have
a material adverse effect on its business. None of Borrower's or any of its
Subsidiaries' 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 of its Subsidiaries have 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.
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5.8 SUBSIDIARIES; INVESTMENTS. Borrower does not own any stock,
partnership interest or other equity securities except for Permitted
Investments.
5.9 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed all required tax returns and reports, and Borrower and its
Subsidiaries have timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. Borrower may defer
payment of any contested taxes, provided that Borrower (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, (b) notifies Bank in writing of the
commencement of, and any material development in, the proceedings, (c) posts
bonds or takes any other steps required to prevent the governmental authority
levying such contested taxes from obtaining a Lien upon any of the Collateral
that is other than a "Permitted Lien". Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result in
additional taxes becoming due and payable by Borrower. Borrower has paid all
amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms, and Borrower has not
withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.
5.10 USE OF PROCEEDS. Borrower shall use the proceeds of the Credit
Extensions solely as working capital and to fund its general business
requirements and not for personal, family, household or agricultural purposes.
5.11 FULL DISCLOSURE. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Bank, as
of the date such representations, warranties, or other statements were made,
taken together with all such written certificates and written statements 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 (it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).
6 AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1 GOVERNMENT COMPLIANCE. Maintain its and all its Subsidiaries'
legal existence and good standing in their respective jurisdictions 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, the noncompliance with which could have a material adverse effect on
Borrower's business.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) 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) as soon as available, but no later than one hundred
twenty (120) days after the last day of Borrower's fiscal year, audited
consolidated financial statements prepared under GAAP, consistently applied,
together with an unqualified opinion on the financial statements from an
independent certified public accounting firm acceptable to Bank in its
reasonable discretion; (iii) within five (5) days of delivery, copies of all
statements, reports and notices made available to Borrower's security holders or
to any holders of Subordinated Debt; (iv) in the event that Borrower becomes
subject to the reporting requirements under the Securities Exchange Act of 1934,
as amended, within five (5) days of filing, all reports on Form 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission or a link thereto on
Borrower's or another website on the Internet; (v) a prompt report of any legal
actions pending or threatened against Borrower or any of its Subsidiaries that
could result in damages or costs to Borrower or any of its Subsidiaries of One
Hundred Thousand Dollars ($100,000) or more; (vi) annually, and as requested by
Bank, Board approved financial projections; (vii) prompt notice of an event that
materially and adversely affects the value of the intellectual property; and
(viii) other financial information reasonably requested by Bank.
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(b) Within thirty (30) days after the last day of each month,
deliver to Bank a duly completed Borrowing Base Certificate signed by a
Responsible Officer, with aged listings of accounts receivable (by invoice
date).
(c) Within thirty (30) days after the last day of each month,
deliver to Bank with the monthly financial statements, a duly completed
Compliance Certificate signed by a Responsible Officer setting forth
calculations showing compliance with the financial covenants set forth in this
Agreement.
(d) Allow Bank to audit Borrower's Accounts at Borrower's
expense. Such audits shall be conducted no more often than once every twelve
(12) months unless a Default or an Event of Default has occurred and is
continuing. Notwithstanding the foregoing, the Initial Audit shall be completed
on or before forty-five (45) days after the Effective Date.
6.3 INVENTORY; RETURNS. Keep all Inventory in good and marketable
condition, free from material defects. Returns and allowances between Borrower
and its Account Debtors shall follow Borrower's customary practices as they
exist at the Effective Date. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims that involve more than One Hundred Fifty
Thousand Dollars ($150,000).
6.4 TAXES; PENSIONS. Make, and cause each of its Subsidiaries to
make, timely payment of all foreign, federal, state, and local taxes or
assessments (other than taxes and assessments which Borrower is contesting
pursuant to the terms of Section 5.9 hereof) and shall deliver to Bank, on
demand, appropriate certificates attesting to such payments, and pay all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms.
6.5 INSURANCE. Keep its business and the Collateral insured for
risks and in amounts standard for companies in Borrower's industry and location
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 lender loss payee
and waive subrogation against Bank, and all liability policies shall show, or
have endorsements showing, Bank as an additional insured. All policies (or the
loss payable and additional insured endorsements) shall provide that the insurer
must give Bank at least twenty (20) days notice before canceling, amending, or
declining to renew 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. Notwithstanding the foregoing, (a) so long as no Event of
Default has occurred and is continuing, Borrower shall have the option of
applying the proceeds of any casualty policy up to $50,000, in the aggregate,
toward the replacement or repair of destroyed or damaged property; provided that
any such replaced or repaired property (i) shall be of equal or like value as
the replaced or repaired Collateral and (ii) shall be deemed Collateral in which
Bank has been granted a first priority security interest, and (b) after the
occurrence and during the continuance of an Event of Default, all proceeds
payable under such casualty policy shall, at the option of Bank, be payable to
Bank on account of the Obligations. If Borrower fails to obtain insurance as
required under this Section 6.5 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 6.5, and take
any action under the policies Bank deems prudent.
6.6 OPERATING ACCOUNTS.
(a) Maintain its and its Subsidiaries' depository, operating,
and securities accounts with Bank and Bank's affiliates, with the exception of
accounts maintained with PNC Bank, Royal Bank of Scotland, and Barclays Bank,
provided that the maximum aggregate balance of such accounts does not exceed
Seventy-Five Thousand Dollars ($75,000.00) at any time (the "Permitted
Accounts"). Any Guarantor shall maintain all depository, operating and
securities accounts with Bank, or SVB Securities.
(b) With the exception of the Permitted Accounts, provide Bank
five (5) days prior written notice before establishing any Collateral Account at
or with any bank or financial institution other than Bank or its Affiliates. In
addition, with the exception of the Permitted Accounts for each Collateral
Account that Borrower or Guarantor at any time maintains, Borrower shall cause
the applicable bank or financial institution (other than Bank) at or with which
any Collateral Account is maintained to execute and deliver a Control Agreement
or other appropriate instrument with respect to such Collateral Account to
perfect Bank's Lien in such Collateral Account in accordance with the terms
hereunder. The provisions of the previous sentence shall not apply to deposit
accounts
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exclusively used for payroll, payroll taxes and other employee wage and benefit
payments to or for the benefit of Borrower's employees and identified to Bank by
Borrower as such.
6.7 FINANCIAL COVENANTS.
Borrower shall maintain, as of the last day of each month,
unless otherwise noted:
(a) MINIMUM CASH BALANCE. As of the Effective Date, and at all
times thereafter, Borrower shall maintain unrestricted and unencumbered
cash, in accounts with the Bank or a Bank subsidiary, as directed by
Bank, plus any used portion of Availability Amount, collectively in
amount not less than One Million Five Hundred Thousand Dollars
($1,500,000.00), which shall be tested as of the last day of each
month.
(b) TANGIBLE NET WORTH. Commencing with the month ending May
31, 2006, and as of the last day of each month thereafter, a Tangible
Net Worth of at least: (i) One Million Six Hundred Thousand Dollars
($1,600,000.00) (with the exception of the month ending January 31,
2007, which shall be Seven Hundred Thousand Dollars ($700,000.00)),
plus (ii) on a quarterly basis beginning with the quarter ending
June 30, 2006, an amount equal to fifty percent (50.0%) of
Borrower's Net Income for the subject quarter, for any applicable
period, determined in accordance with GAAP.
6.8 LITIGATION COOPERATION. From the date hereof and continuing
through the termination of this Agreement, make available to Bank, without
expense to Bank, Borrower and its officers, employees and agents and Borrower's
books and records, to the extent that Bank may deem them reasonably necessary to
prosecute or defend any third-party suit or proceeding instituted by or against
Bank with respect to any Collateral or relating to Borrower.
6.9 LOCK BOX AGREEMENT. Within thirty (30) days after a request
from Borrower for an Advance and at all times thereafter, Borrower shall direct
each account debtor (and each depository institution where proceeds of accounts
receivable are on deposit) to make payments with respect to all receivables to
one or more lockbox accounts established with the Bank ("Lockbox") or to wire
transfer payments to a cash collateral account that Bank controls, as and when
directed by the Bank from time to time, at its option and at the sole and
exclusive discretion of the Bank
6.10 PROTECTION AND REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Borrower shall: (a) protect, defend and maintain the validity and enforceability
of its intellectual property; (b) promptly advise Bank in writing of material
infringements of its intellectual property; and (c) not allow any intellectual
property material to Borrower's business to be abandoned, forfeited or dedicated
to the public without Bank's written consent. If Borrower decides to register
any copyrights or mask works in the United States Copyright Office, Borrower
shall: (x) provide Bank with at least fifteen (15) days prior written notice of
its intent to register such copyrights or mask works together with a copy of the
application it intends to file with the United States Copyright Office
(excluding exhibits thereto); (y) execute an intellectual property security
agreement or such other documents as Bank may reasonably request to maintain the
perfection and priority of Bank's security interest in the copyrights or mask
works intended to be registered with the United States Copyright Office; and (z)
record such intellectual property security agreement with the United States
Copyright Office contemporaneously with filing the copyright or mask work
application(s) with the United States Copyright Office. Borrower shall promptly
provide to Bank a copy of the application(s) filed with the United States
Copyright Office together with evidence of the recording of the intellectual
property security agreement necessary for Bank to maintain the perfection and
priority of its security interest in such copyrights or mask works. Borrower
shall provide written notice to Bank of any application filed by Borrower in the
United States Patent and Trademark Office for a patent or to register a
trademark or service mark within 30 days after any such filing.
6.11 FURTHER ASSURANCES. Borrower shall execute any further
instruments and take further action as Bank reasonably requests to perfect or
continue Bank's Lien in the Collateral or to effect the purposes of this
Agreement.
6.12 RATIFICATION OF INTELLECTUAL PROPERTY SECURITY AGREEMENT.
Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms
and conditions of the IP Agreement, and acknowledges, confirms and agrees that
"Loan Agreement" as defined therein includes this Agreement. The IP Agreement
contains an accurate
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and complete listing of all Intellectual Property Collateral as defined in said
IP Agreement, shall remain in full force and effect, and secures the
Obligations.
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, "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, except for Transfers (a)
of Inventory in the ordinary course of business; (b) of worn-out or obsolete
Equipment; (c) in connection with Permitted Liens and Permitted Investments; and
(d) of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiary in the ordinary course of business.
Borrower shall not enter into an agreement with any Person other than Bank which
restricts the subsequent granting of a security interest in the Intellectual
Property.
7.2 CHANGES IN BUSINESS, MANAGEMENT, OWNERSHIP, OR BUSINESS
LOCATIONS. (a) Engage in or permit any of its Subsidiaries to engage in any
business other than the businesses currently engaged in by Borrower and such
Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or
dissolve; or (c) (i) have a material change in management or (ii) enter into any
transaction or series of related transactions in which the stockholders of
Borrower immediately prior to the first such transaction own less than 50% of
the voting stock of Borrower immediately after giving effect to such transaction
or related series of such transactions (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 transaction). Borrower shall not, without at least thirty (30)
days prior written notice to Bank: (1) add any new offices or business
locations, including warehouses (unless such new offices or business locations
contain less than Ten Thousand Dollars ($10,000) in Borrower's assets or
property), (2) change its jurisdiction of organization, (3) change its
organizational structure or type, (4) change its legal name, or (5) 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, or enter into any agreement, document, instrument or
other arrangement (except with or in favor of Bank) with any Person which
directly or indirectly prohibits or has the effect of prohibiting Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower's or any Subsidiary's
intellectual property, except as is otherwise permitted in Section 7.1 hereof
and the definition of "Permitted Lien" herein. The Collateral may also be
subject to Permitted Liens.
7.6 MAINTENANCE OF COLLATERAL ACCOUNTS. Maintain any Collateral
Account except pursuant to the terms of Section 6.6.(b) hereof.
7.7 DISTRIBUTIONS; INVESTMENTS. (a) Directly or indirectly make
any Investment other than Permitted Investments, or permit any of its
Subsidiaries to do so; or (b) pay any dividends or make any distribution or
payment or redeem, retire or purchase any capital stock.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower,
except for: (i) those transactions contemplated by the guarantee of the
Guarantor, and (ii) 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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7.9 SUBORDINATED DEBT. (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination, intercreditor,
or other similar agreement to which such Subordinated Debt is subject, or (b)
amend any provision in any document relating to the Subordinated Debt which
would increase the amount thereof or adversely affect the subordination thereof
to Obligations owed to Bank.
7.10 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 (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension 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 permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation
plan which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
8 EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an
"EVENT OF DEFAULT") under this Agreement:
8.1 PAYMENT DEFAULT. Borrower fails to (a) make any payment of
principal or interest on any Credit Extension on its due date, or (b) pay any
other Obligations within three (3) Business Days after such Obligations are due
and payable (which three day grace period will not apply to payments due on the
Maturity Date). During the cure period, the failure to cure the payment default
shall not constitute an Event of Default (but no Credit Extension will be made
during the cure period);
8.2 COVENANT DEFAULT.
(a) Borrower fails or neglects to perform any obligation in
Sections 6.2, 6.6, 6.7, or violates any covenant in Section 7; or
(b) Borrower fails or neglects to perform, keep, or observe
any other term, provision, condition, covenant or agreement contained in this
Agreement, any Loan Documents, and as to any default (other than those specified
in this Section 8 below) under such other term, provision, condition, covenant
or agreement that can be cured, has failed to cure the 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 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 cure the default shall not be deemed an Event of Default (but no Credit
Extensions shall be made during such cure period). Grace periods provided under
this section shall not apply, among other things, to financial covenants or any
other covenants set forth in subsection (a) above;
8.3 MATERIAL ADVERSE CHANGE. A Material Adverse Change occurs;
8.4 ATTACHMENT. (a) Any material 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; (b) the
service of process upon Bank ( or Bank's Affiliate) seeking to attach, by
trustee or similar process, any funds of, or of any entity under control of
Borrower (including a Subsidiary) on deposit with the Bank; (c) Borrower is
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (d) a judgment or other claim in excess of One Hundred
Thousand Dollars ($100,000.00) becomes a Lien on any of Borrower's assets; or
(e) 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. These are not Events of Default if stayed or if a bond is
posted pending contest by Borrower (but no Credit Extensions shall be made
during the cure period);
8.5 INSOLVENCY (a) Borrower is unable to pay its debts (including
trade debts) as they become due or otherwise becomes insolvent; (b) Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is
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begun against Borrower and not dismissed or stayed within forty-five (45) days
(but no Credit Extensions shall be made while of any of the conditions described
in clause (a) exist and/or until any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS. There is a default in any agreement to which
Borrower or any Guarantor 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 on Borrower's or
any Guarantor's business;
8.7 JUDGMENTS. 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) (not covered by independent third-party insurance) shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a period
of ten (10) days after the entry thereof (provided that no Credit Extensions
will be made prior to the satisfaction or stay of such judgment);
8.8 MISREPRESENTATIONS. Borrower or any Person acting for Borrower
makes any representation, warranty, or other statement now or later in this
Agreement, any Loan Document or in any writing delivered to Bank or to induce
Bank to enter this Agreement or any Loan Document, and such representation,
warranty, or other statement is incorrect in any material respect when made;
8.9 SUBORDINATED DEBT. A default or breach occurs under any
agreement between Borrower and any creditor of Borrower that signed a
subordination, intercreditor, or other similar agreement with Bank, or any
creditor that has signed such an agreement with Bank breaches any terms of such
agreement; or
8.10 GUARANTY. (a) Any guaranty of any Obligations terminates or
ceases for any reason to be in full force and effect; (b) any Guarantor does not
perform any obligation or covenant under any guaranty of the Obligations; (c)
any circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or 8.8 occurs with
respect to any Guarantor; (d) the liquidation, winding up, or termination of
existence of any Guarantor; or (e) a material adverse change in the general
affairs, management, results of operation, condition (financial or otherwise) or
the prospect of repayment of the Obligations occurs with respect to any
Guarantor.
8.11 CROSS-DEFAULT. An Event of Default occurs and remains
continuing under the Existing Loan and Security Agreement.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. While 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) demand that Borrower (i) deposits cash with Bank in an
amount equal to the aggregate amount of any Letters of Credit remaining undrawn,
as collateral security for the repayment of any future drawings under such
Letters of Credit, and Borrower shall forthwith deposit and pay such amounts,
and (ii) pay in advance all Letter of Credit fees scheduled to be paid or
payable over the remaining term of any Letters of Credit;
(d) terminate any FX Contracts;
(e) settle or adjust disputes and claims directly with Account
Debtors for amounts on terms and in any order that Bank considers advisable,
notify any Person owing Borrower money of Bank's security interest in such
funds, and verify the amount of such account;
(f) make any payments and do any acts it considers necessary
or reasonable to protect the Collateral and/or its security interest in the
Collateral. Borrower shall assemble the Collateral if Bank requests and
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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;
(g) 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;
(h) 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;
(i) 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;
(j) demand and receive possession of Borrower's Books; and
(k) exercise all rights and remedies available to Bank under
the Loan Documents or at law or equity, including all remedies provided under
the Code (including disposal of the Collateral pursuant to the terms thereof).
9.2 POWER OF ATTORNEY. Borrower hereby irrevocably appoints Bank
as its lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to: (a) endorse Borrower's name on any
checks or other forms of payment or security; (b) sign Borrower's name on any
invoice or bill of lading for any Account or drafts against Account Debtors; (c)
settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle,
and adjust all claims under Borrower's insurance policies; (e) pay, contest or
settle any Lien, charge, encumbrance, security interest, and adverse claim in or
to the Collateral, or any judgment based thereon, or otherwise take any action
to terminate or discharge the same; and (f) transfer the Collateral into the
name of Bank or a third party as the Code permits. Borrower hereby appoints Bank
as its lawful attorney-in-fact to sign Borrower's name on any documents
necessary to perfect or continue the perfection of Bank's security interest in
the Collateral regardless of whether an Event of Default has occurred until all
Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank's foregoing appointment as Borrower's
attorney in fact, and all of Bank's rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank's obligation to provide Credit Extensions terminates.
9.3 ACCOUNTS VERIFICATION; COLLECTION. When an Event of Default
has occurred and is continuing, Bank may notify any Person owing Borrower money
of Bank's security interest in such funds and verify the amount of such account.
After the occurrence and during the continuance of an Event of Default, any
amounts received by Borrower shall be held in trust by Borrower for Bank, and,
if requested by Bank, Borrower shall immediately deliver such receipts to Bank
in the form received from the Account Debtor, with proper endorsements for
deposit.
9.4 PROTECTIVE PAYMENTS. If Borrower fails to obtain the insurance
called for by Section 6.5 or fails to pay any premium thereon or fails to pay
any other amount which Borrower is obligated to pay under this Agreement or any
other Loan Document, Bank may obtain such insurance or make such payment, and
all amounts so paid by Bank are Bank Expenses and immediately due and payable,
bearing interest at the then highest applicable rate, and secured by the
Collateral. Bank will make reasonable efforts to provide Borrower with notice of
Bank obtaining such insurance at the time it is obtained or within a reasonable
time thereafter. No payments by Bank are deemed an agreement to make similar
payments in the future or Bank's waiver of any Event of Default.
9.5 APPLICATION OF PAYMENTS AND PROCEEDS. If an Event of Default
has occurred and is continuing, Bank may apply any funds in its possession,
whether from Borrower account balances, payments, proceeds realized as the
result of any collection of Accounts or other disposition of the Collateral, or
otherwise, to the Obligations in such order as Bank shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other Persons
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legally entitled thereto; Borrower shall remain liable to Bank for any
deficiency. If Bank, in its good faith business judgment, directly or indirectly
enters into a deferred payment or other credit transaction with any purchaser at
any sale of Collateral, Bank shall have the option, exercisable at any time, of
either reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Bank of
cash therefor.
9.6 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices regarding the safekeeping of the Collateral in the
possession or under the control of Bank, 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.
9.7 NO WAIVER; REMEDIES CUMULATIVE. Bank's failure, at any time or
times, to require strict performance by Borrower of any provision of this
Agreement or any other Loan Document shall not waive, affect, or diminish any
right of Bank thereafter to demand strict performance and compliance herewith or
therewith. No waiver hereunder shall be effective unless signed by Bank and then
is only effective for the specific instance and purpose for which it is given.
Bank's rights and remedies under this Agreement and the other Loan Documents 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 in
exercising any remedy is not a waiver, election, or acquiescence.
9.8 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.
10 NOTICES
All notices, consents, requests, approvals, demands, or other
communication (collectively, "Communication") by any party to this Agreement or
any other Loan Document must be in writing and shall be deemed to have been
validly served, given, or delivered: (a) upon the earlier of actual receipt and
three (3) Business Days after deposit in the U.S. mail, first class, registered
or certified mail return receipt requested, with proper postage prepaid; (b)
upon transmission, when sent by electronic mail or facsimile transmission; (c)
one (1) Business Day after deposit with a reputable overnight courier with all
charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of
which shall be addressed to the party to be notified and sent to the address,
facsimile number, or email address indicated below. Bank or Borrower may change
its address or facsimile number by giving the other party written notice thereof
in accordance with the terms of this Section 10.
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If to Borrower: Voxware, Inc.
168 Franklin Corner Road
Lawrenceville, New Jersey 08648
Attn: Chief Executive Officer
Fax: (609) 514 4103
Email: TDrury@voxware.com
If to Bank: Silicon Valley Bank
100 Matsonford Road, Building 5, Suite 555
Radnor, Pennsylvania 19087
Attn: Mr. Bill Howell
Fax: (610) 971-2063
Email: BHowell@svbank.com
with a copy to: Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
Fax: (617)880-3456
Email: DEphraim@riemerlaw.com
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER AND JUDICIAL
REFERENCE
Massachusetts 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 Massachusetts; provided,
however, that if for any reason Bank cannot avail itself of such courts in the
Commonwealth of Massachusetts, 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.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, 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 and the other Loan
Documents.
12.2 INDEMNIFICATION. Borrower agrees to indemnify, defend and hold
Bank and its directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Bank harmless against: (a) all
obligations, demands, claims, and liabilities (collectively, "Claims") 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 arising from transactions between Bank and Borrower (including
reasonable attorneys' fees and expenses), except for Claims and/or losses
directly caused by Bank's gross negligence or willful misconduct.
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12.3 LIMITATION OF ACTIONS. Any claim or cause of action by
Borrower against Bank, its directors, officers, employees, agents, accountants,
attorneys, or any other Person affiliated with or representing Bank based upon,
arising from, or relating to this Loan Agreement or any other Loan Document, or
any other transaction contemplated hereby or thereby or relating hereto or
thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted
or suffered to be done by Bank, its directors, officers, employees, agents,
accountants or attorneys, shall be barred unless asserted by Borrower by the
commencement of an action or proceeding in a court of competent jurisdiction by
(a) the filing of a complaint within one year from the earlier of (i) the date
any of Borrower's officer or directors had knowledge of the first act, the
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, or (ii) the date this Agreement is terminated, and (b) the
service of a summons and complaint on an officer of Bank, or on any other person
authorized to accept service on behalf of Bank, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Bank in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other Loan
Document.
12.4 TIME OF ESSENCE. Time is of the essence for the performance
of all Obligations in this Agreement.
12.5 SEVERABILITY OF PROVISIONS. 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 until this Agreement has terminated
pursuant to its terms and all Obligations (other than inchoate indemnity
obligations and any other obligations which, by their terms, are to survive the
termination of this Agreement) have been satisfied. 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: (a) to
Bank's Subsidiaries or Affiliates; (b) to prospective transferees or purchasers
of any interest in the Credit Extensions (provided, however, Bank shall use
commercially reasonable efforts to obtain such prospective transferee's or
purchaser's agreement to the terms of this provision); (c) as required by law,
regulation, subpoena, or other order; (d) to Bank's regulators or as otherwise
required in connection with Bank's examination or audit; and (e) as Bank
considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (i) 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 (ii) 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 RIGHT OF SET OFF. Borrower hereby grants to Bank, a lien,
security interest and right of set off 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
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.
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13 DEFINITIONS
13.1 DEFINITIONS. As used in this Agreement, the following terms
have the following meanings:
"ACCOUNT" is any "account" as defined in the Code with such additions
to such term as may hereafter be made, and includes, without limitation, all
accounts receivable and other sums owing to Borrower.
"ACCOUNT DEBTOR" is any "account debtor" as defined in the Code with
such additions to such term as may hereafter be made.
"ADVANCE" or "ADVANCES" means an advance (or advances) under the
Revolving Line.
"ADJUSTED QUICK RATIO" means a ratio of Quick Assets to Quick
Liabilities.
"AFFILIATE" of any Person 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.
"AGREEMENT" is defined in the preamble hereof.
"AVAILABILITY AMOUNT" is (a) the lesser of (i) the Revolving Line or
(ii) the Borrowing Base minus (b) the amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal
to the Letter of Credit Reserves, minus (c) the FX Reserve, and minus (d) the
outstanding principal balance of any Advances (including any amounts used for
Cash Management Services).
"BANK" is defined in the preamble hereof.
"BANK EXPENSES" are all audit fees and expenses, costs, and expenses
(including reasonable attorneys' fees and expenses) for preparing, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings)
or otherwise incurred with respect.
"BOARD" means Borrower's Board of Directors.
"BORROWER" is defined in the preamble hereof.
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, federal and state tax returns, records regarding Borrower's assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.
"BORROWING BASE" is eighty percent (80.0%) of Eligible Accounts, as
determined by Bank from Borrower's most recent Borrowing Base Certificate, and
if Borrower's Adjusted Quick Ratio is less than 1.25 to 1.0, at any time, minus
the outstanding Obligations under the Term Loan; provided, however, that Bank
may decrease the foregoing percentages in its good faith business judgment after
consultation with Borrower, based on events, conditions, contingencies, or risks
which, as determined by Bank, may adversely affect Collateral.
"BORROWING BASE CERTIFICATE" is that certain certificate in the form
attached hereto as EXHIBIT C.
"BORROWING RESOLUTIONS" are, with respect to any Person, those
resolutions adopted by such Person's Board of Directors and delivered by such
Person to Bank approving the Loan Documents to which such Person is a party and
the transactions contemplated thereby, together with a certificate executed by
its secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) that attached as Exhibit A to such
certificate is a true, correct, and complete copy of the resolutions then in
full force and effect authorizing and ratifying the execution, delivery, and
performance by such Person of the Loan Documents to which it is a party, (c) the
name(s) of the Person(s) authorized to execute the Loan Documents on behalf of
such Person, together with a sample of the true signature(s)
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of such Person(s), and (d) that Bank may conclusively rely on such certificate
unless and until such Person shall have delivered to Bank a further certificate
canceling or amending such prior certificate.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which Bank is closed.
"CASH EQUIVALENTS" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor's Ratings
Group or Moody's Investors Service, Inc., and (c) Bank's certificates of deposit
issued maturing no more than one (1) year after issue.
"CASH MANAGEMENT SERVICES" is defined in Section 2.1.4.
"CASH MANAGEMENT SERVICES SUBLIMIT" is defined in Section 2.1.4.
"CODE" is the Uniform Commercial Code, as the same may, from time to
time, be enacted and in effect in the Commonwealth of Massachusetts; provided,
that, to the extent that the Code is used to define any term herein or in any
Loan Document and such term is defined differently in different Articles or
Divisions of the Code, the definition of such term contained in Article or
Division 9 shall govern; provided further, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection, or
priority of, or remedies with respect to, Bank's Lien on any Collateral is
governed by the Uniform Commercial Code in effect in a jurisdiction other than
the Commonwealth of Massachusetts, the term "CODE" shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for
purposes on the provisions thereof relating to such attachment, perfection,
priority, or remedies and for purposes of definitions relating to such
provisions.
"COLLATERAL" is any and all properties, rights and assets of Borrower
described on EXHIBIT A.
"COLLATERAL ACCOUNT" is any Deposit Account, Securities Account, or
Commodity Account.
"COMMODITY ACCOUNT" is any "commodity account" as defined in the Code
with such additions to such term as may hereafter be made.
"COMMUNICATION" is defined in Section 10.
"COMPLIANCE CERTIFICATE" is that certain certificate in the form
attached hereto as EXHIBIT D.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (a) 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; (b) any obligations for undrawn letters of credit for the account of
that Person; and (c) 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 any guarantee or other support arrangement.
"CONTROL AGREEMENT" is any control agreement entered into among the
depository institution at which Borrower maintains a Deposit Account or the
securities intermediary or commodity intermediary at which Borrower maintains a
Securities Account or a Commodity account, Borrower, and Bank pursuant to which
Bank obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.
"CREDIT EXTENSION" is any Advance, Letter of Credit, Term Loan, FX
Forward Contract, amount utilized for Cash Management Services, or any other
extension of credit by Bank for Borrower's benefit.
"CURRENT LIABILITIES" are all obligations and liabilities of Borrower
to Bank, plus, without duplication, the aggregate amount of Borrower's Total
Liabilities that mature within one (1) year.
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"DEFAULT" means any event which with notice or passage of time or
both, would constitute an Event of Default.
"DEFAULT RATE" is defined in Section 2.3(b).
"DEFERRED REVENUE" is all amounts received or invoiced in advance of
performance under contracts and not yet recognized as revenue.
"DEPOSIT ACCOUNT" is any "deposit account" as defined in the Code with
such additions to such term as may hereafter be made.
"DESIGNATED DEPOSIT ACCOUNT" is Borrower's deposit account, account
number _____________, maintained with Bank.
"DOLLARS," "DOLLARS" and "$" each mean lawful money of the United
States.
"EFFECTIVE DATE" is defined in the preamble of this Agreement.
"ELIGIBLE ACCOUNTS" are Accounts which arise in the ordinary course of
Borrower's business that meet all Borrower's representations and warranties in
Section 5.3. Bank reserves the right, after consultation with Borrower, at any
time and from time to time after the Effective Date, to adjust any of the
criteria set forth below and to establish new criteria in its good faith
business judgment. Unless Bank agrees otherwise in writing, Eligible Accounts
shall not include:
(a) Accounts for which the Account Debtor has not been invoiced;
(b) Accounts that the Account Debtor has not paid within ninety (90)
days of invoice date;
(c) Accounts owing from an Account Debtor, fifty percent (50%) or more
of whose Accounts have not been paid within ninety (90) days of invoice date;
(d) Credit balances over ninety (90) days from invoice date;
(e) Accounts owing from an Account Debtor, including Affiliates, whose
total obligations to Borrower exceed fifty percent (50.0%) of all Accounts, for
the amounts that exceed that percentage, unless Bank approves in writing;
(f) Accounts owing from an Account Debtor which does not have its
principal place of business in the United States, except for Eligible Foreign
Accounts;
(g) Accounts owing from an Account Debtor which is a federal, state or
local government entity or any department, agency, or instrumentality thereof
except for Accounts of the United States or state or local government if
Borrower has assigned its payment rights to Bank and the assignment has been
acknowledged under the Federal Assignment of Claims Act of 1940, as amended or
corresponding state or local laws or regulations;
(h) Accounts owing from an Account Debtor to the extent that Borrower
is indebted or obligated in any manner to the Account Debtor (as creditor,
lessor, supplier or otherwise - sometimes called "contra" accounts, accounts
payable, customer deposits or credit accounts), with the exception of customary
credits, adjustments and/or discounts given to an Account Debtor by Borrower in
the ordinary course of its business;
(i) Accounts for demonstration or promotional equipment, or in which
goods are consigned, or sold on a "sale guaranteed", "sale or return", "sale on
approval", "bill and hold", or other terms if Account Debtor's payment may be
conditional;
(j) Accounts for which the Account Debtor is Borrower's Affiliate,
officer, employee, or agent;
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(k) Accounts in which the Account Debtor disputes liability or makes
any claim (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;
(l) Accounts owing from an Account Debtor with respect to which
Borrower has received deferred revenue (but only to the extent of such deferred
revenue);
(m) Accounts for which Bank in its good faith business judgment
determines collection to be doubtful; and
(n) other Accounts Bank deems ineligible in the exercise of its good
faith business judgment.
"ELIGIBLE FOREIGN ACCOUNTS" are Accounts for which the Account Debtor
does not have its principal place of business in the United States but are
otherwise Eligible Accounts, AND that Bank approves in writing in its sole and
absolute discretion, on a case by case basis. Eligible Foreign Accounts shall
include Waitrose, Somerfield, Argos, and Intermarche.
"EQUIPMENT" is all "equipment" as defined in the Code with such
additions to such term as may hereafter be made, and includes without limitation
all machinery, fixtures, goods, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"EVENT OF DEFAULT" is defined in Section 8.
"EXISTING LOAN AGREEMENT" means that certain Loan and Security
Agreement dated as of December 29, 2003, as amended and in effect, by and
between the Borrower and the Bank.
"FOREIGN CURRENCY" means lawful money of a country other than the
United States.
"FUNDING DATE" is any date on which a Credit Extension is made to or
on account of Borrower which shall be a Business Day.
"FX BUSINESS DAY" is any day when (a) Bank's Foreign Exchange
Department is conducting its normal business and (b) the Foreign Currency being
purchased or sold by Borrower is available to Bank from the entity from which
Bank shall buy or sell such Foreign Currency.
"FX FORWARD CONTRACT" is defined in Section 2.1.3.
"FX RESERVE" is defined in Section 2.1.3.
"GAAP" is generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other Person as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"GENERAL INTANGIBLES" is all "general intangibles" as defined in the
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation, all copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, any trade secret
rights, including any rights to unpatented inventions, payment intangibles,
royalties, contract rights, goodwill, franchise agreements, purchase orders,
customer lists, route lists, telephone numbers, domain names, claims, income and
other tax refunds, security and other deposits, options to purchase or sell real
or personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.
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"GOOD FAITH DEPOSIT" is defined in Section 2.4(c).
"GUARANTOR" is any present or future guarantor of the Obligations,
including Verbex Acquisition Corporation.
"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.
"INITIAL AUDIT" shall be the receipt by Bank of the results of a
complete audit of Borrower's Accounts, with results satisfactory to Bank in its
sole and absolute discretion.
"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.
"INVENTORY" is all "inventory" as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and
includes without limitation all merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products, including
without limitation such inventory as is temporarily out of Borrower's custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.
"INVESTMENT" is any beneficial ownership interest in any Person
(including stock, partnership interest or other securities), and any loan,
advance or capital contribution to any Person.
"IP AGREEMENT" is that certain Intellectual Property Security Agreement
dated as of December 29, 2003, by and between the Borrower and the Bank.
"LETTER OF CREDIT" means a standby letter of credit issued by Bank or
another institution based upon an application, guarantee, indemnity or similar
agreement on the part of Bank as set forth in Section 2.1.2.
"LETTER OF CREDIT APPLICATION" is defined in Section 2.1.2(a).
"LETTER OF CREDIT RESERVE" has the meaning set forth in Section
2.1.2(d).
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, the Perfection
Certificate, any note, or notes or guaranties executed by Borrower or any
Guarantor, and any other present or future agreement between Borrower any
Guarantor and/or for the benefit of Bank in connection with this Agreement, all
as amended, restated, or otherwise modified.
"LOCKBOX" is defined in Section 6.9.
"MATERIAL ADVERSE CHANGE" is (a) a material impairment in the
perfection or priority of Bank's Lien in the Collateral or in the value of such
Collateral; (b) a material adverse change in the business, operations, or
condition (financial or otherwise) of Borrower; (c) a material impairment of the
prospect of repayment of any portion of the Obligations; or (d) Bank determines,
based upon information available to it and in its reasonable judgment, that
there is a reasonable likelihood that Borrower shall fail to comply with one or
more of the financial covenants in Section 6 during the next succeeding
financial reporting period.
"NET INCOME" means, as calculated on a consolidated basis for Borrower
for any period as to any date of determination, the net profit (or loss), after
provision for taxes for such period taken as a single accounting period.
"OBLIGATIONS" are Borrower's obligation to pay when due any debts,
principal, interest, Bank Expenses and other amounts Borrower owes Bank now or
later, whether under this Agreement, the Existing Loan Agreement, the Loan
Documents, or otherwise, including, without limitation, all obligations relating
to letters of credit, cash management services, and foreign exchange contracts,
if any, and including interest accruing after Insolvency
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Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank, and the performance of Borrower's duties under the Loan Documents.
"OPERATING DOCUMENTS" are, for any Person, such Person's formation
documents, as certified with the Secretary of State of such Person's state of
formation on a date that is no earlier than 30 days prior to the Effective Date,
and its bylaws in current form, each of the foregoing with all current
amendments or modifications thereto.
"PAYMENT/ADVANCE FORM" is that certain form attached hereto as EXHIBIT
B.
"PAYMENT DATE" is the first day of each calendar month.
"PERFECTION CERTIFICATE" is defined in Section 5.1.
"PERMITTED ACCOUNTS" is defined in Section 6.6(a).
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's Indebtedness to Bank under this Agreement and the other
Loan Documents;
(b) Indebtedness existing on the Effective Date and shown on the
Perfection Certificate;
(c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness secured by Permitted Liens; and
(f) extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (e) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Perfection Certificate and existing on the
Effective Date; and
(b) Cash Equivalents.
"PERMITTED LIENS" are:
(a) Liens existing on the Effective Date and shown on the Perfection
Certificate or arising under this Agreement and the 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 Liens;
(c) purchase money Liens and capital leases (i) on Equipment acquired
or held by Borrower incurred for financing the acquisition of the Equipment
securing no more than Five Hundred Thousand Dollars ($500,000.00) in the
aggregate amount outstanding, or (ii) existing on Equipment when acquired, IF
the Lien is confined to the property and improvements and the proceeds of the
Equipment;
(d) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), 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;
(e) carrier's, warehousemen's, mechanics', materialmen's, repairmen's,
landlord's liens or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than thirty (30) days or
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which are being contested in good faith by appropriate proceedings and for which
appropriate reserves have been made therefor;
(f) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements; and
(g) deposits to secure the performance of tenders, bids or leases,
trade contracts (other than for borrowed money), statutory obligations, surety,
customs, stay and appeal bonds, performance and return of money bonds,
government contracts and other obligations of a like nature in an amount not to
exceed Fifty Thousand Dollars ($50,000.00), in the aggregate.
"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 Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"PROFITABILITY EVENT" is the confirmation by the Bank that Borrower has
maintained a net profit of at least One Dollar ($1.00), for two (2) consecutive
fiscal quarters.
"QUICK ASSETS" is, on any date, Borrower's, unrestricted cash, plus net
billed accounts receivable.
"QUICK LIABILITIES" are Current Liabilities, less (i) the current
portion of Subordinated Debt and Deferred Revenue, and (ii) accrued bonuses due
to employees.
"REGISTERED ORGANIZATION" is any "registered organization" as defined
in the Code with such additions to such term as may hereafter be made
"RESPONSIBLE OFFICER" is any of the Chief Executive Officer,
President, Chief Financial Officer and Controller of Borrower.
"REVOLVING LINE" is an Advance or Advances in an aggregate amount of
up to One Million Five Hundred Thousand Dollars ($1,500,000.00) outstanding at
any time.
"REVOLVING LINE MATURITY DATE" is October 31, 2007.
"SECURITIES ACCOUNT" is any "securities account" as defined in the
Code with such additions to such term as may hereafter be made.
"SUBORDINATED DEBT" is indebtedness incurred by Borrower subordinated
to all of Borrower's now or hereafter indebtedness to Bank (pursuant to a
subordination, intercreditor, or other similar agreement in form and substance
satisfactory to Bank entered into between Bank and the other creditor), on terms
acceptable to Bank.
"SUBSIDIARY" means, with respect to any Person, any Person of which
more than 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" is, on any date, the total assets of Borrower
MINUS (a) any amounts attributable to (i) goodwill, (ii) intangible items
including unamortized debt discount and expense, patents, trade and service
marks and names, copyrights and research and development expenses except prepaid
expenses, (iii) notes, accounts receivable and other obligations owing to
Borrower from its officers or other Affiliates, and (iv) reserves not already
deducted from assets, MINUS (b) Total Liabilities , PLUS (c) Subordinated Debt.
"TERM LOAN" is a loan made by Bank pursuant to the terms of Section
2.1.5 hereof.
"TERM LOAN" is an aggregate amount equal to One Million Five Hundred
Thousand Dollars ($1,500,000.00) outstanding at any time.
-23-
"TERM LOAN MATURITY DATE" is September 1, 2009.
"TERM LOAN PAYMENT" is defined in Section 2.1.5(b).
"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.
"TRANSFER" is defined in Section 7.1.
SIGNATURE PAGE FOLLOWS.
-24-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the Effective Date.
BORROWER:
VOXWARE, INC.
By /s/ Paul Commons
-----------------------------------------
Name: Paul Commons
--------------------------------------
Title: Chief Financial Officer
-------------------------------------
BANK:
SILICON VALLEY BANK
By /s/ Richard White
-----------------------------------------
Name: Richard White
--------------------------------------
Title: Relationship Manager
-------------------------------------
[Signature page to Loan and Security Agreement]
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in and to
the following personal property:
All goods, Accounts (including health-care receivables), Equipment,
Inventory, contract rights or rights to payment of money, leases, license
agreements, franchise agreements, General Intangibles, commercial tort claims,
documents, instruments (including any promissory notes), chattel paper (whether
tangible or electronic), cash, deposit accounts, certificates of deposit,
fixtures, letters of credit rights (whether or not the letter of credit is
evidenced by a writing), securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; 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.
1
2
EXHIBIT B
LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS NOON E.S.T.*
Fax To: Date: _____________________
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN PAYMENT:
VOXWARE, INC.
From Account #________________________________ To Account #______________________________________________________
(Deposit Account #) (Loan Account #)
Principal $___________________________________ and/or Interest $_________________________________________________
AUTHORIZED SIGNATURE:____________________________ Phone Number:___________________________________________
Print Name/Title: _______________________________
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN ADVANCE:
Complete OUTGOING WIRE REQUEST section below if all or a portion of the funds from this loan advance are for an outgoing wire.
From Account #_____________________________________________ To Account #_____________________________________________________
(Loan Account #) (Deposit Account #)
Amount of Advance $________________________________________
All Borrower's representations and warranties in the Loan and Security Agreement are true, correct and complete in all material
respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable
to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided,
further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date:
AUTHORIZED SIGNATURE:__________________________________________ Phone Number: ____________________________________
Print Name/Title: _____________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
OUTGOING WIRE REQUEST:
COMPLETE ONLY IF ALL OR A PORTION OF FUNDS FROM THE LOAN ADVANCE ABOVE IS TO BE WIRED.
Deadline for same day processing is noon, E.S.T.
Beneficiary Name: _______________________________ Amount of Wire: $_______________________________
Beneficiary Bank: _______________________________ Account Number: ________________________________
City and State: _________________________________
Beneficiary Bank Transit (ABA) #: _______________ Beneficiary Bank Code (Swift, Sort, Chip, etc.): ___________________________
(FOR INTERNATIONAL WIRE ONLY)
Intermediary Bank: ______________________________ Transit (ABA) #: ___________________________________________________________
For Further Credit to: ___________________________________________________________________________________________________________
Special Instruction: _____________________________________________________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
______________________________________
* Unless otherwise provided for an Advance bearing interest at LIBOR.
1
- ------------------------------------------------------------------------------------------------------------------------------------
BY SIGNING BELOW, I (WE) ACKNOWLEDGE AND AGREE THAT MY (OUR) FUNDS TRANSFER REQUEST SHALL BE PROCESSED IN ACCORDANCE WITH AND
SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE AGREEMENTS(S) COVERING FUNDS TRANSFER SERVICE(S), WHICH AGREEMENTS(S) WERE
PREVIOUSLY RECEIVED AND EXECUTED BY ME (US).
Authorized Signature: ___________________________ 2nd Signature (if required): __________________________________
Print Name/Title: ______________________________ Print Name/Title: _____________________________________________
Telephone #: ____________________________________ Telephone
- ------------------------------------------------------------------------------------------------------------------------------------
2
EXHIBIT C
BORROWING BASE CERTIFICATE
- -------------------------------------------------------------------------------------------------------------------
Borrower: Voxware, Inc.
Lender: Silicon Valley Bank
Commitment Amount: $1,500,000.00
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ____________________ $_______________
2. Additions (please explain on reverse) $_______________
3. TOTAL ACCOUNTS RECEIVABLE $_______________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_______________
5. Balance of 50% over 90 day accounts $_______________
6. Credit balances over 90 days $_______________
7. Concentration Limits $_______________
8. Foreign Accounts $_______________
9. Governmental Accounts $_______________
10. Contra Accounts $_______________
11. Promotion or Demo Accounts $_______________
12. Intercompany/Employee Accounts $_______________
13. Disputed Accounts $_______________
14. Deferred Revenue $_______________
15. Other (please explain on reverse) $_______________
16. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_______________
17. Eligible Accounts (#3 minus #16) $_______________
18. ELIGIBLE AMOUNT OF ACCOUNTS ( 80% of #17, if Borrower's Adjusted Quick Ratio is $_______________
less than 1.25 to 1.0, at any time, minus the outstanding Obligations under the
Term Loan)
BALANCES
19. Maximum Loan Amount $_______________
20. Total Funds Available (Lesser of #19 and #18) $_______________
21. Present balance owing on Line of Credit $_______________
22. Outstanding under Sublimits (L/C, Cash Mgt, Fx) $_______________
23. RESERVE POSITION (#20 minus #21 and #22) $_______________
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THIS IS TRUE, COMPLETE AND CORRECT,AND THAT THE INFORMATION IN THIS BORROWING
BASE CERTIFICATE COMPLIES WITH THE REPRESENTATIONS AND WARRANTIES IN THE LOAN AND SECURITY AGREEMENT BETWEEN THE
UNDERSIGNED AND SILICON VALLEY BANK.
----------------------------------------------
BANK USE ONLY
COMMENTS: Received by: _______________________
AUTHORIZED SIGNER
Date: ____________________________
By: ___________________________ Verified: __________________________
Authorized Signer AUTHORIZED SIGNER
Date: ________________________________ Date: ______________________________
Compliance Status: Yes No
----------------------------------------------
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EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK Date:
----------------------------
FROM: VOXWARE, INC.
The undersigned authorized officer of Voxware, Inc. ("Borrower")certifies that under the terms and conditions
of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (1) Borrower is in complete compliance
for the period ending _______________ with all required covenants except as noted below, (2) there are no Events of Default,
(3) all representations and warranties in the Agreement are true and correct in all material respects on this date except
as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material
respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports,
and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by
Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been
levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the
certification. The undersigned certifies that these are prepared in accordance with generally GAAP consistently applied
from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that
no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms
used but not otherwise defined herein shall have the meanings given them in the Agreement.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
- ------------------------------------------------------------- ---------------------------------------- ---------------------
REPORTING COVENANT REQUIRED COMPLIES
- ------------------------------------------------------------- ---------------------------------------- ---------------------
- ------------------------------------------------------------- ---------------------------------------- ---------------------
Monthly financial statements with Monthly within 30 days Yes No
Compliance Certificate
- ------------------------------------------------------------- ---------------------------------------- ---------------------
Annual financial statement (CPA Audited) + CC FYE within 120 days Yes No
- ------------------------------------------------------------- ---------------------------------------- ---------------------
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
- ------------------------------------------------------------- ---------------------------------------- ---------------------
Borrowing Base Certificate A/R Agings Monthly within 30 days Yes No
- ------------------------------------------------------------- ---------------------------------------- ---------------------
Audit Annually and within 45 days of Effective Yes No
Date
- ------------------------------------------------------------- ---------------------------------------- ---------------------
Board approved projections Annually Yes No
- ----------------------------------------------------------------------------------------------------------------------------
The following Intellectual Property was registered after the Effective Date (if no registrations, state "None")
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------- --------------- --------------- ----------------------
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- --------------------------------------------------------------------- --------------- --------------- ----------------------
- --------------------------------------------------------------------- --------------- --------------- ----------------------
Minimum Cash Balances $1,500,000.00 $ Yes No
- --------------------------------------------------------------------- --------------- --------------- ----------------------
Minimum Tangible Net Worth $______ * $ Yes No
- --------------------------------------------------------------------- --------------- --------------- ----------------------
- ------------------------------------------- -------------------------------------- -----------------------------------------
ADJUSTED QUICK RATIO** REQUIRED ACTUAL
- ------------------------------------------- -------------------------------------- -----------------------------------------
Minimum Adjusted Quick Ratio 1.25: 1.0
- ------------------------------------------- -------------------------------------- -----------------------------------------
* As set forth in Section 6.7(b) of the Agreement
** Note, this is not a financial covenant.
1
The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and
accurate as of the date of this Certificate.
The following are the exceptions with respect to the certification above: (If no exceptions exist, state "No
exceptions to note.")
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
Voxware, Inc. BANK USE ONLY
Received by: _______________________
By:___________________________________________ AUTHORIZED SIGNER
Name:_________________________________________ Date: _____________________________
Title:________________________________________
Verified: __________________________
AUTHORIZED SIGNER
Date: _____________________________
Compliance Status: Yes No
2
SCHEDULE 1 TO COMPLIANCE CERTIFICATE
FINANCIAL COVENANTS OF BORROWER
Dated: ____________________
In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall
control.
I. TANGIBLE NET WORTH
A. Aggregate value of total assets of Borrower and $______
B. Aggregate value of goodwill of Borrower $______
C. Aggregate value of intangible assets of Borrower $______
D. Aggregate value of any reserves not already deducted from assets $______
E. Aggregate value of obligations owing to Borrower from officers or other directors $______
F. Aggregate value of liabilities of Borrower (including all
Indebtedness) $ and current portion of Subordinated Debt permitted by
Bank to be paid by Borrower (but no other Subordinated Debt)
G. Value of Subordinated Debt $______
H. Tangible Net Worth (line A minus line B minus line C minus line D minus line E minus line F, $______
plus line G)
Is line H equal to or greater than $_____________?
_________ No, not in compliance ________ Yes, in compliance
II. ADJUSTED QUICK RATIO
A. Aggregate value of the unrestricted cash of Borrower $______
B. Aggregate value of the net billed accounts receivable of Borrower $______
C. Quick Assets (the sum of lines A and B) $______
D. Aggregate value of Obligations to Bank $______
E. Aggregate value of liabilities of Borrower (including all
Indebtedness) that matures within one (1) year and current portion of
Subordinated Debt permitted by Bank to be paid by Borrower $
3
F Aggregate value of (i) the current portion of Subordinated Debt and
Deferred Revenue and (ii) accrued bonuses due to employees
G. Quick Liabilities (the sum of lines D, E minus F) $______
G. Adjusted Quick Ratio (line C divided by line G) _______
Is line G equal to or greater than 1.25:1:00?
4