<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
COMMISSION FILE NUMBER 0-28041
---------------
IMANAGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-4043595
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2121 SOUTH EL CAMINO REAL, SUITE 400, SAN MATEO, CALIFORNIA 94403
(Address of principal executive offices, zip code)
(650) 356-1166
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
At May 1, 2000, there were 21,965,360 shares of the registrant's common
stock, $.001 par value, outstanding.
================================================================================
<PAGE> 2
IMANAGE, INC.
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
December 31, 1999 and March 31, 2000.....................................................................1
Condensed Consolidated Statements of Operations and Other Comprehensive Loss:
Three Months Ended March 31, 1999 and March 31, 2000.....................................................2
Condensed Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1999 and March 31, 2000.....................................................3
Notes to Condensed Consolidated Financial Statements..........................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................6
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................................18
PART II OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds........................................................................20
Item 6. Exhibits and Reports on Form 8-K................................................................................20
SIGNATURES...............................................................................................................21
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMANAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------ ------------
1999 2000
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 47,985 $ 33,889
Short-term investments ..................................... 3,028 6,605
Trade accounts receivable, net ............................. 5,704 7,373
Other current assets ....................................... 831 1,417
------------ ------------
Total current assets ................................. 57,548 49,284
Property and equipment, net ................................... 1,913 2,448
Long-term investments ......................................... 3,223 11,344
Other assets .................................................. 1,237 1,192
------------ ------------
Total assets ......................................... $ 63,921 $ 64,268
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 1,627 $ 472
Accrued liabilities ........................................ 2,398 2,959
Equipment line of credit, current portion .................. 612 612
Deferred revenue ........................................... 9,068 9,384
------------ ------------
Total current liabilities ............................ 13,705 13,427
Equipment line of credit, less current portion ................ 1,388 1,360
------------ ------------
Total liabilities .................................... 15,093 14,787
============ ============
Commitments
Stockholders' Equity:
Common stock and additional paid-in capital ................ 63,885 63,562
Deferred stock-based compensation .......................... (4,046) (2,984)
Notes receivable for common stock .......................... (1,002) (992)
Accumulated other comprehensive loss ....................... (42) (90)
Accumulated deficit ........................................ (9,967) (10,015)
------------ ------------
Total stockholders' equity ........................... 48,828 49,481
------------ ------------
Total liabilities and stockholders' equity ........... $ 63,921 $ 64,268
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE> 4
IMANAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenues:
Licenses ....................................................... $ 2,805 $ 5,410
Support and services ........................................... 774 1,772
------------ ------------
Total revenues ........................................... 3,579 7,182
------------ ------------
Cost of revenues:
Licenses ....................................................... 149 280
Support and services (inclusive of stock-based compensation
expense of $17 in 1999 and $46 in 2000) ........................ 543 1,048
------------ ------------
Total cost of revenues ................................... 692 1,328
------------ ------------
Gross profit ...................................................... 2,887 5,854
------------ ------------
Operating expenses:
Sales and marketing (inclusive of stock-based compensation
expense of $173 in 1999 and $482 in 2000) ...................... 1,880 3,984
Research and development (inclusive of stock-based compensation
expense of $96 in 1999 and $152 in 2000) ....................... 996 1,674
General and administrative (inclusive of stock-based compensation
expense of $241 in 1999 and $119 in 2000) ...................... 681 957
------------ ------------
Total operating expenses ................................. 3,557 6,615
------------ ------------
Loss from operations .............................................. (670) (761)
Interest income ................................................... 79 788
Interest expense .................................................. (2) (52)
------------ ------------
Loss before provision for income taxes ............................ (593) (25)
------------ ------------
Provision for income taxes ........................................ (1) (23)
------------ ------------
Net loss .......................................................... (594) (48)
------------ ------------
Other comprehensive loss:
Unrealized loss on investments .............................. -- (48)
------------ ------------
Comprehensive loss ................................................ $ (594) $ (96)
============ ============
Net loss per share -- basic and diluted ........................... $ (0.08) $ (0.00)
============ ============
Shares used in net loss per share -- basic and diluted ........... 7,892 21,289
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 5
IMANAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................... $ (594) $ (48)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization ........................................ 87 262
Amortization of prepaid rent ......................................... 92 --
Amortization of deferred stock-based compensation .................... 376 799
Stock issued for services ............................................ 151 --
Provision for doubtful accounts ...................................... -- 81
Changes in operating assets and liabilities:
Trade accounts receivable ......................................... 372 (1,750)
Other current assets .............................................. 4 (299)
Other assets ...................................................... 374 (242)
Accounts payable .................................................. 673 (1,156)
Accrued liabilities ............................................... (1,196) 561
Deferred revenue .................................................. 3,387 316
------------ ------------
Net cash provided by (used in) operating activities ............ 3,726 (1,476)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .................................... (563) (797)
Purchases of investments, net .......................................... -- (11,746)
------------ ------------
Net cash used in investing activities .......................... (563) (12,543)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of equipment line of credit .................................. -- (28)
Repayment of note receivable ........................................... -- 10
Issuance of common stock, net .......................................... 5 30
Payment for additional initial public offering expenses ................ -- (89)
------------ ------------
Net cash provided by (used in) financing activities ............ 5 (77)
------------ ------------
Net increase (decrease) in cash and cash equivalents ................... 3,168 (14,096)
Cash and cash equivalents at beginning of period ....................... 7,617 47,985
------------ ------------
Cash and cash equivalents at end of period ............................. $ 10,785 $ 33,889
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ................................................. $ 2 $ 52
------------ ------------
Cash paid for income taxes ............................................. $ 11 $ 23
============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of common stock in exchange for notes receivable .............. $ 34 $ --
============ ============
Deferred stock based compensation ...................................... $ 1,188 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 6
IMANAGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by
iManage, Inc., a Delaware company, (the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. However,
the Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
The unaudited condensed consolidated financial statements reflect all
adjustments (which include only normal, recurring adjustments) that are, in the
opinion of management, necessary to state fairly the results for the periods
presented. The results for such periods are not necessarily indicative of the
results to be expected for the full year.
The preparation of condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Certain amounts in the condensed consolidated financial statements as of
December 31, 1999 and for the three months ended March 31, 1999, have been
reclassified to conform with the 2000 presentation.
NET LOSS PER SHARE
The following table presents information necessary to reconcile basic and
diluted net loss per common and common equivalent share (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Net loss .................................................. $ (594) $ (48)
Shares used in net loss per share -- basic and diluted .... 7,892 21,289
------------ ------------
Net loss per share -- basic and diluted ................... $ (0.08) $ (0.00)
============ ============
Anti-Dilutive Securities:
Convertible preferred stock ............................ 8,033 --
Options to purchase common stock ....................... 1,723 1,469
Common stock subject to repurchase ..................... 379 655
------------ ------------
10,135 2,124
============ ============
</TABLE>
The weighted average exercise price of stock options outstanding was $0.33
and $3.69 as of March 31, 1999 and 2000, respectively. The weighted average
repurchase price of unvested stock was $0.30 and $0.72 as of March 31, 1999 and
2000, respectively.
DEFERRED STOCK COMPENSATION
4
<PAGE> 7
The Company uses the intrinsic value method of accounting for stock-based
compensation. Accordingly, no compensation cost is recognized for certain stock
options when the exercise price of each option equals or exceeds the fair value
of the underlying common stock as of the grant date for each stock option. With
respect to the stock options granted since inception through December 31, 1999,
the Company recorded deferred stock compensation of $10.4 million for the
difference at the grant date between the exercise price and the fair value of
the common stock underlying the options. This amount is being amortized in
accordance with Financial Accounting Standards Board (FASB) Interpretation No.
28 over the vesting period of the individual options, generally 4 years.
LINE OF CREDIT AGREEMENT
In March 1999, the Company entered into a line of credit agreement with a
bank, comprised of a revolving line of credit and an equipment line of credit.
The line of credit agreement is collateralized by substantially all of the
Company's assets, intangible assets and intellectual property.
The revolving line of credit, as amended, provides for borrowings of up to
$3.0 million, which can be used at the discretion of the Company through March
31, 2001. Borrowings bear interest at prime plus 0.25% and are due at March 31,
2001. At March 31, 2000, no amounts had been drawn against this facility.
The equipment line of credit, as amended, bears interest at prime plus
0.50% and provides for borrowings of up to $4.0 million to finance the Company's
purchases of property and equipment. At March 31, 2000, $2.0 million had been
fully drawn.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. In July, 1999, the
Financial Accounting Standard Boards issued SFAS No. 137, or "SFAS 137,"
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS No. 133." SFAS 137 deferred the effective date of SFAS
133 until the first fiscal quarter beginning after June 15, 2000. The Company
does not currently hold derivative instruments or engage in hedging activities.
The Company currently anticipates that there will be no significant impact on
the Company's financial position or results of operations for the implementation
of the requirements of SFAS 133 and SFAS 137.
In November 1999, the SEC issued Staff Accounting Bulletin 100, or SAB 100,
which clarifies the SEC's views on accounting for and disclosing certain
expenses incurred in connection with exit activities and business combinations.
In December 1999, SAB 101 was issued to summarize the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company does not expect SAB 100 to have a material effect on its
financial position, results of operations or cash flow. The Company is currently
evaluating the impact SAB 101 will have on its financial position and results of
operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation an Interpretation of APB 25," which clarifies:
(a) the definition of an employee for purposes of applying APB 25,
(b) the criteria for determining whether a plan qualifies as a
non-compensatory plan,
(c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and
(d) the accounting for an exchange of stock compensation awards in a
business combination.
5
<PAGE> 8
This interpretation is effective July 1, 2000, with certain provisions
effective earlier. The Company will evaluate the possible impact, if any, that
FIN 44 may have on its financial statements.
RELATED PARTY TRANSACTIONS
One of the founders and principal stockholders of the Company is the owner
of a consulting company that subleased space from the Company and provided other
services including consulting and employee recruitment in 1999 and 2000. In
addition, the Company reimbursed the consulting company for certain travel
expenses and other services incurred on its behalf and for the use of certain
assets in 1999 and 2000. In 1999, the Company subleased office space to this
consulting company. Additionally, the Company hired certain of the consulting
company's consultants to provide software development services in 1999.
Amounts included in net loss which were paid, received or due to or from
this related party are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1999 2000
------------- ------------
<S> <C> <C>
Sublease rent income.......................................... $ 21,150 $ 22,913
Consulting and other service expense.......................... 217,680 206,795
</TABLE>
SUBSEQUENT EVENTS
In April 2000, the Company entered into an Agreement and Plan of
Reorganization with NetRight Technologies, a wholly-owned subsidiary of the
Company, and Thoughtstar, Inc. (Thoughtstar), a privately-held collaboration
software company. The Company will acquire Thoughtstar in a tax-free transaction
for approximately $18.5 million in common stock and cash. The merger is expected
to be recorded using purchase method of accounting.
In April 2000, the Company loaned an executive officer $1,000,000. The loan
carries interest at 5% per annum and principal and interest are due October 31,
2000. Outstanding principal and accrued interest may be renewed at October 31,
2000 upon agreement of the parties. The loan is collateralized by 165,000 shares
of the Company's common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Financial
Data" and our consolidated financial statements and related notes appearing
elsewhere in this report. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Forward looking
statements can be identified by terms such as "may," "will," "should," "expect,"
"plan," "intend," "forecast," "anticipate," "believe," "estimate," "predict,"
"potential," "continue" or the negative of these terms or other comparable
terminology. The actual results may differ materially from those anticipated in
these forward-looking statements as a result of certain factors, such as those
set forth under "Factors That May Impact Future Results" and the risks discussed
in our other SEC filings, including our registration statement on Form S-1
declared effective November 17, 1999 by the SEC (File No. 333-86353) and in our
Annual Report on Form 10-K filed March 22, 2000 with the SEC.
OVERVIEW
We supply e-business content and collaboration software platforms and
applications that provides organizations with a web-based unified content
platform that manages, organizes and delivers relevant information from a
variety of sources in a centralized manner throughout the extended enterprise.
We believe we are a leading provider of e-business content and collaboration
management software, based on the number of customers we serve and the
6
<PAGE> 9
features our software provides. Since 1996, we have licensed our products to
over 600 customers for use by over 100,000 end users.
We were incorporated in October 1995 and commenced operations shortly after
that time. During the period October 1995 through September 1996 we were a
development stage company and had no revenues. Our operating activities during
this period related primarily to developing our product, building our corporate
infrastructure and raising capital. In October 1996, we released the first
version of our iManage infoCommerce Server and iManage infoRite, and in June
1997, we enhanced our iManage suite of products and shipped iManage infoLink. In
March 1998, we released an enhanced version of iManage infoCommerce Server. We
began shipping our iManage infoLook in August 1999 and in the fourth quarter of
1999 we released an enhanced version of iManage infoLink.
Our license revenues are based on the number of users and servers. Support
and services revenues consist of customer support, training and consulting.
Customers who license our products generally purchase support contracts, which
are billed on a subscription basis typically covering a 12-month period.
Training services are billed on a per student or per class session basis and
consulting is customarily billed at a fixed daily rate plus our out-of-pocket
expenses.
Commencing in 1998, we began recognizing revenues based on the American
Institute of Certified Public Accountants Statement of Position 97-2, "Software
Revenue Recognition", or SOP 97-2, as amended by Statement of Position 98-4 and
commencing in 2000, Statement of Position 98-9. Further implementation
guidelines relating to these standards may result in unanticipated changes in
our revenue recognition practices, and these changes could affect our future
revenues and earnings.
We recognize license revenues upon shipment of a product master if a signed
contract exists, the fee is fixed and determinable, collection of resulting
receivables is probable and product returns can be reasonably estimated and if
applicable, acceptance criteria have been met. During the fourth quarter of
1999, we implemented a subscription licensing model for a newly released product
whereby the customer licenses the product for one year to 18 month subscription
periods under an arrangement that includes customer support and software updates
during the term of the license. Revenues associated with this software product
and related services are recognized ratably over the applicable license period.
Provisions for estimated warranty costs and sale returns are recorded at the
time of shipment.
For contracts with multiple obligations, for example, deliverable and
undeliverable products, support and other service, we allocate revenues to the
undelivered element of the contract based on objective evidence of its fair
value. This objective evidence is the sales price of the element when sold
separately by us or the renewal rate specified in the arrangement for licensing
arrangements with terms of one year to 18 months that include customer support
and software updates. We generally do not allow the right of return but have
accepted returns in isolated instances when resellers, system integrators and
distributors have incorrectly ordered product. We recognize revenues allocated
to undelivered products when the criteria for license revenues described above
are met. We recognize support and services revenues, including amounts allocated
from contracts with multiple obligations and for ongoing customer support,
ratably over the period of the support contract. Our support and service
arrangements entitle customers to telephone support and unspecified upgrades and
enhancements. Payments for support and services are generally made in advance
and are non-refundable. For revenues allocated to training and consulting
services or derived from the separate sales of these services, we recognize
revenues as the related services are performed.
Our cost of license revenues includes royalties due to third parties for
integrated technology, the cost of manuals and product documentation, production
media used to deliver our products and packaging costs. Our cost of support and
services revenues includes salaries and related expenses for the customer
support, professional services and training organization and an allocation of
overhead expenses.
Our operating expenses are classified as sales and marketing, research and
development, general and administrative and stock-based compensation. We
classify all charges to these operating expense categories based on the nature
of the expenditures. Although each category includes expenses that are unique to
the category type,
7
<PAGE> 10
there are common recurring expenditures that are typically included in all
operating expense categories, including salaries, employee benefits, incentive
compensation, bonuses, travel costs, professional fees, telephone, communication
and rent and allocated facilities costs. The sales and marketing category of
operating expenses includes additional expenditures specific to the sales group,
such as commissions, and expenditures specific to the marketing group, including
public relations and advertising, trade shows and marketing collateral
materials. In the development of our new products and enhancements of existing
products, the technological feasibility of the software is not established until
substantially all product development is complete. Historically, software
development costs eligible for capitalization have been insignificant, and we
have expensed all costs related to internal research and development as we have
incurred them.
In connection with the granting of stock options to our employees and
consultants, we have recorded deferred stock-based compensation totaling
approximately $10.4 million through March 31, 2000, of which approximately $3.0
million remains to be amortized. This amount represents the difference between
the exercise price and the current estimated fair value of our common stock on
the date these stock options were granted. This amount is included as part of
stockholders' equity and is being amortized by charges to operations over the
vesting period of the options, consistent with the method described in Financial
Accounting Standards Board, or FASB, Interpretation No. 28. We recognized
stock-based compensation expense of approximately $527,000 and $799,000 in the
quarters ended March 31, 1999 and March 31, 2000, respectively, which includes
stock-based compensation expense amounts for services provided before the grant
date of the options. Future compensation expense from options granted through
December 31, 1999 will be charged to operations through 2003.
We anticipate that our operating expenses will increase substantially as we
intend to continue to incur significant research and development costs and
invest heavily in the expansion of our sales, marketing and support
organizations to build an infrastructure to support our long-term growth
strategy. The number of our full-time employees increased from 119 as of
December 31, 1999 to 144 as of March 31, 2000. We will seek to hire additional
employees in the future. To achieve profitability, we will have to increase our
total revenues significantly. We cannot assure you that we will ever attain or
maintain profitability.
In view of the rapidly changing nature of our market and our limited
operating history, we believe that period-to-period comparisons of our revenues
and operating results are not necessarily meaningful and should not be relied
upon as indicative of future performance. Our historic revenue growth rates are
not necessarily sustainable or indicative of our future growth. Our prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in early stages of development, particularly companies
in new and rapidly evolving markets. We cannot assure you we will be successful
in addressing these risks and difficulties.
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 2000 % CHANGE
------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
License $ 2,805 $ 5,410 92.9%
Support and services 774 1,772 128.9%
------------- -------------
Total revenues $ 3,579 $ 7,182 100.7%
============= =============
Sources of revenue as a percent of total revenue
1999 2000
------------ ------------
License 78.4% 75.3%
Support and services 21.6% 24.7%
</TABLE>
License Revenues. Our license revenues increased $2.6 million, or 92.9%,
for the three months ended March 31, 2000 as compared to the corresponding
period in 1999, primarily due to increased market acceptance of our suite of
products and increased prices for these products.
Support and Services Revenues. Our support and services revenues increased
$998,000, or 128.9%, for the three months ended March 31, 2000 as compared to
the corresponding period in 1999. Support and services
8
<PAGE> 11
revenues consisted primarily of customer support and, to a lesser extent,
training and consulting services, associated with the increasing license
revenues during these periods. The increase in absolute dollars in support and
services revenues for the above periods reflects the increasing customer
installation base of iManage suite of products.
COST OF REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1999 2000 % CHANGE
----------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
License $ 149 $ 280 87.9%
Support and services 543 1,048 93.0%
Cost of revenues as a percent of related revenue
1999 2000
----------- ------------
License 5.3% 5.2%
Support and services 70.2% 59.1%
</TABLE>
Cost of License Revenues. Cost of license revenues increased $131,000, or
87.9%, for the three months ended March 31, 2000 as compared to the
corresponding period in 1999, and was the result of increased costs of media
associated with the increasing license revenues during this period.
Cost of Support and Services Revenues. Cost of support and services
revenues increased $505,000, or 93.0%, for the three months ended March 31, 2000
as compared to the corresponding period in 1999 and resulted primarily from an
increase of $158,000 in personnel-related expenses from increases in technical
support and training headcount and an increase of $52,000 in increased
facilities-related overhead costs. Cost of support and services revenues also
include $17,000 and $46,000 for 1999 and 2000, respectively, for stock-based
compensation.
OPERATING EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1999 2000 % CHANGE
----------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales and marketing $ 1,880 $ 3,984 111.9%
Research and development 996 1,674 68.1%
General and administrative 681 957 40.5%
Net interest income 77 736 855.8%
Provision for income taxes 1 23 --
</TABLE>
Operating expenses as a percent of total revenues
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 2000
---------- ---------
<S> <C> <C>
Sales and marketing 52.5% 55.5%
Research and development 27.8% 23.3%
General and administrative 19.0% 13.3%
Net interest income 2.2% 10.2%
Provision for income taxes -- --
</TABLE>
Sales and Marketing. Sales and marketing expenses increased $2.1 million
for the three months ended March 31, 2000 as compared to the corresponding
period in 1999. This increase primarily reflected investments in our sales and
marketing infrastructure, which included an increase of $1.0 million related to
significant personnel-related expenses including salaries, benefits and
commissions, recruiting fees, and related costs of hiring sales management,
sales representatives, sales engineers and marketing personnel. Sales and
marketing employees totaled 30 as of March 31, 1999, and 52 as of March 31,
2000, representing an increase of 73.3%. The increase in sales and marketing
expenses also reflected an increase of $319,000 in travel and entertainment
expenses and an
9
<PAGE> 12
increase of $227,000 in public relations and trade show expenses. Sales and
marketing expenses also include $173,000 and $482,000 for 1999 and 2000,
respectively, for stock-based compensation.
Research and Development. Research and development expenses increased
$678,000 for the three months ended March 31, 2000 as compared to the
corresponding period in 1999 and was primarily related to increased personnel
costs resulting from the increase in the wage rates, benefits and the number of
software developers and quality assurance personnel and third-party consultants
to support our product development and testing activities related to the
development of iManage infoRite, iManage infoLink and iManage infoLook, as well
as enhancements to iManage infoCommerce Server. Our research and development
employees totaled 21 as of March 31, 1999, and 44 as of March 31, 2000,
representing an increase of 109.5%. The decrease in research and development
expenses as a percentage of total for the three months ended March 31, 2000 as
compared to the corresponding period in 1999 resulted from increases in our
total revenue. Research and development expenses also include $96,000 and
$152,000 for 1999 and 2000, respectively, for stock-based compensation.
General and Administrative. General and administrative expenses increased
$276,000 for the three months ended March 31, 2000 as compared to the
corresponding period in 1999 and was primarily the result of increased personnel
costs of $195,000 resulting from additional finance, executive and
administrative personnel and increases of $141,000 in professional service
costs, primarily accounting and legal, to support the growth of our business
during these periods. General and administrative expenses also include $241,000
and $119,000 for 1999 and 2000, respectively, for stock-based compensation.
Net Interest Income. Net interest income increased $659,000 for the three
months ended March 31, 2000 as compared to the corresponding period in 1999
reflecting higher invested cash balances as a result of proceeds received from
our initial public offering in the fourth quarter of 1999, which was invested
for the full period ending March 31, 2000, offset by interest expense from our
equipment line of credit.
Provision for Income Taxes. Income taxes are accounted for in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes, which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the temporary difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax expense is the tax
payable and the change during the period in deferred tax assets and liabilities.
LIQUIDITY AND CAPITAL RESOURCES
In November 1999, we completed the initial public offering of our common
stock and realized net proceeds from the offering of approximately $41.2
million. Prior to the offering, we had funded our operations primarily through
sales of convertible preferred stock, resulting in net proceeds of $10.9 million
through September 30, 1999. To a lesser extent, we have financed our operations
through lending arrangements. As of March 31, 2000, we had cash, cash
equivalents and available for sale marketable securities of $51.8 million and
approximately $3.0 million of available borrowings under a line of credit.
Net cash provided by operating activities was $3.7 million for the three
months ended March 31, 1999; $1.5 million was used by operating activities for
the three months ended March 31, 2000. Cash used by operating activities was
primarily a result of payment of expenses associated with the Company's initial
public offering which were reflected as liabilities at December 31, 1999 and by
increases in accounts receivable as a result of increasing revenues. Cash
provided by operations was primarily the result of increasing sales of our
iManage suite of products, receipt of cash associated with license and support
and service revenues in advance of revenue recognition and non-cash charges
associated with stock-based compensation expense.
For the last two years, our investing activities have consisted of
purchases of property and equipment and, in 2000, the purchase of long-term
available for sale marketable securities.
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Net cash used in investing activities totaled $563,000 for the three months
ended March 31, 1999 and $12.5 million for the three months ended March 31,
2000. We financed the acquisition of property and equipment primarily through a
line of credit through 1999 and currently finance property and equipment with
current cash flow. Our property and equipment largely consists of computer
hardware and software and furniture and fixtures for our increasing employee
base as well as for our management information systems. We anticipate that we
will experience an increase in our capital expenditures consistent with our
anticipated growth in operations, infrastructure and personnel.
Our financing activities provided $5,000 for the three months ended March
31, 1999 and $77,000 for the three months ended March 31, 2000.
As of March 31, 2000, we had a revolving line of credit with a bank for
$3.0 million, which bears interest at the lending bank's prime rate plus 0.25%.
Borrowings were limited to the lesser of 80% of eligible accounts receivable or
$3.0 million and were secured by substantially all of our assets. As of March
31, 2000, we could have borrowed approximately $3.0 million but had not borrowed
any amount as of that date. In addition, as of March 31, 2000, we had an
equipment line of credit with a bank for $4.0 million, which bears interest at
the lending bank's prime rate plus 0.5%. As of March 31, 2000, we had borrowed
$2.0 million under the equipment line of credit. Both lines of credit include
covenant restrictions requiring us to:
(a) maintain a monthly quick assets to current liabilities ratio of at
least two to one;
(b) maintain a quarterly minimum operating level requiring that we not
incur a net loss, as defined, greater than $1 million; and
(c) limit our ability to declare and pay dividends.
The net loss, as defined, is determined based upon our operating results,
excluding non-cash charges, such as amortization of goodwill, depreciation, and
stock-based compensation. We were in compliance with these covenants at March
31, 2000.
We currently anticipate that the net proceeds of our initial public
offering, together with our existing lines of credit and available funds, will
be sufficient to meet our anticipated needs for working capital and capital
expenditures at least through the next 12 months. However, we may be required,
or could elect, to seek additional funding before that time. Our future capital
requirements will depend on many factors, including our future revenue, the
timing and extent of spending to support product development efforts and
expansion of sales, general and administrative activities, the timing of
introductions of new products and market acceptance of our products. We cannot
assure you that additional equity or debt financing, if required, will be
available on acceptable terms or at all.
FACTORS THAT MAY IMPACT FUTURE RESULTS
Our limited operating history may prevent us from achieving success in our
business.
We were founded in October 1995 and began shipping our first product in
October 1996. Because of our limited operating results, we have limited insight
into trends that may emerge and affect our business. As a result, an evaluation
of our prospects is difficult to make. The potential revenues and income of our
business and many of the markets we intend to target are unproven.
We face significant risks because of our limited operating history,
including:
- we have a limited number of product offerings and will need to
successfully introduce new products and enhance our existing offering,
with, for example, an enhanced version of iManage infoLink, which we
released in the fourth quarter of 1999 and an enhanced version of
iManage infoCommerce Server, which we released in the first quarter of
2000;
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- we need to sell additional licenses and software products to our
existing customers and expand our customer base beyond legal and other
professional service firms; and
- we need to expand our sales and marketing and customer support
organization to focus on a broad range of markets and build strategic
relationships with information technology consultants, systems
integrators and unified messaging original equipment manufacturers to
increase sales.
If we do not successfully address any of these and other challenges, our
business and operating results will be seriously harmed.
We have an accumulated deficit of approximately $10.0 million as of March
31, 2000 and may not be able to achieve profitability.
Our failure to significantly increase our total revenues would seriously
harm our business and operating results. To increase our revenues, we must incur
significant expenses to increase our research and development, sales and
marketing and general and administrative resources. If our revenues do not grow
to offset these increased expenses, we will not be profitable. We may not be
able to sustain our recent revenue growth rates. In fact, we may not have any
revenue growth, and our revenues could decline.
Our quarterly operating results are volatile and difficult to predict. If
we fail to meet the expectations of public market analysts or investors, the
market price of our common stock may decrease significantly.
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. As a result, we believe that
period-to-period comparisons of our operating results are not meaningful and
should not be relied upon as indicators of our future performance. In the
future, our operating results may be below the expectations of securities
analysts and investors. Our failure to meet these expectations would likely
cause the price of our common stock to decline. Operating results vary depending
on a number of factors, including:
- the size, timing, terms and fluctuations of customer orders; and
- the timing of the introduction or enhancement of products by us.
In addition, depending on the manner in which we sell existing or future
products, this could have the effect of extending the length of time over which
we recognize revenues. Our quarterly revenues could be significantly affected
based on how applicable accounting standards are amended or interpreted over
time.
Also, the adoption of our subscription licensing model, which requires the
recognition of license revenue over the term of the agreement, may result in
lower quarterly revenues in the period when the products were sold when compared
to quarters in which subscription licenses were not sold.
Furthermore, our expense levels are relatively fixed and are based, in
part, on expectations of future revenues. Therefore, if revenue levels fall
below our expectations, our net loss will increase because only a small portion
of our expenses vary with our revenues.
Our revenues will decline significantly if the market does not continue to
accept our iManage suite of products.
In the three months ending March 31, 1999 and March 31, 2000, we derived
substantially all of our license revenues from the sale of licenses for our
iManage infoCommerce Server, iManage infoRite and iManage infoLink products. We
currently expect to continue to derive a majority of our license revenues from
these products. If the market does not continue to accept these products, our
revenues will decline significantly and this could negatively affect our
operating results. Factors that may affect the market acceptance of these
products include the performance, price and total cost of ownership of our
products and the availability, functionality and price of competing products and
technologies. Many of these factors are beyond our control.
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We have always been heavily dependent upon law firm customers. If we do not
expand sales of our products to other customers, we may not be able to grow our
revenues consistent with past growth rates and our operating results will
suffer.
We derived 93% and 87% of our total revenues in the three months ending
March 31, 1999 and March 31, 2000, respectively, from the sale of licenses to
law firms and professional service firms. Our future success is substantially
dependent on our ability to sell a significant number of licenses to customers
in other businesses, particularly large multi-national corporations. To sell a
significant number of licenses to these businesses, we must devote time and
resources to train our sales employees to work in industries outside law firms
and professional service firms. We may not be successful in our efforts. Unlike
law firms and professional service organizations, customers in other industries,
including large multi-national corporations, may not require or perceive the
value of our content and collaboration software platform and applications. If we
cannot license our products to customers in other industries, our business could
be significantly adversely affected.
We may be unable to penetrate additional markets and grow our revenues if
we do not successfully obtain leads or referrals from our customers.
To increase sales of our e-business content and collaboration software
platform and applications and grow our total revenues, we will try to obtain
leads or referrals from our current customers. If we are unable to maintain
these existing customer relationships, or fail to establish additional
relationships, we will have to devote substantially more resources, both
financial and personnel, to the sales and marketing of our products. As a
result, our success depends in part on the ultimate success of these current
relationships and the willingness of our customers to provide us with these
introductions, referrals and leads. Our current customer relationships do not,
and any future relationships we establish may not, afford us any exclusive
marketing or distribution rights. In addition, at any time, our customers may
terminate their relationships with us, pursue other relationships with our
competitors or develop or acquire products that compete with our products. Even
if our customers provide us with leads and introductions, we may not penetrate
additional markets or grow our revenues.
If the emerging market for e-business content and collaboration software
does not develop as quickly as we expect, our business will suffer.
The market for e-business content and collaboration software platform and
applications has only recently begun to develop, is rapidly evolving and will
likely have an increasing number of competitors. We cannot be certain that a
viable market for our products will emerge or be sustainable. If the e-business
content and collaboration software market fails to develop, or develops more
slowly than expected, demand for our products will be less than anticipated and
our business and operating results would be seriously harmed.
Furthermore, to be successful in this emerging market, we must be able to
differentiate our business from our competitors through our product and service
offerings and brand name recognition. We may not be successful in
differentiating our business or achieving widespread market acceptance of our
products and services. In addition, enterprises that have already invested
substantial resources in other methods of managing their content and
collaborative process may be reluctant or slow to adopt a new approach that may
replace, limit or compete with their existing systems.
Due to our lengthy and variable sales cycle, we may not be able to predict
when or if sales will be made and we may experience unplanned shortfalls in
revenues.
Our products have an unpredictable sales cycle that contributes to the
uncertainty of our future operating results. Customers often view the purchase
of our products as a significant and strategic decision, and this decision
typically involves a considerable commitment of resources and is influenced by
the customers' budget cycles. Selling our products also requires us to educate
potential customers on their use and benefits because our e-business content and
collaboration software is a new category of product. As a result, our products
have a lengthy sales cycle, which has historically ranged from approximately two
to six months.
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As potential customers evaluate our products and before they place an order
with us, we typically expend significant sales and marketing expenses. Larger
customers may purchase our products as part of multiple, simultaneous purchasing
decisions, which may result in additional unplanned administrative processing
and other delays in our product sales. If sales forecasted from a specific
customer for a particular quarter are not realized, we may experience unplanned
shortfalls in revenues. As a result, we have only a limited ability to forecast
the timing and size of sales of our products.
Competition from providers of software enabling content and collaboration
management among businesses may increase, which could cause us to reduce our
prices, and result in reduced gross margins or loss of market share.
The market for products that enable companies to manage and share content
and collaborate throughout an extended enterprise is new, highly fragmented,
rapidly changing and increasingly competitive. We expect competition to continue
to intensify, which could result in price reductions for our products, reduced
gross margins and loss of market share, any of which would have a material
adverse effect on our business and financial condition.
If our efforts to enhance existing products and introduce new products are
not successful, we may not be able to generate demand for our products.
Our future success depends on our ability to provide a comprehensive
e-business content and collaboration software solution. To provide this
comprehensive solution, we must continually develop and introduce high quality,
cost-effective products as well as product enhancements on a timely basis. If
the market does not accept new products, our business will suffer and our stock
price will likely fall.
In addition, while our current product offerings have the ability to manage
many types of content, such as graphics, video, text, audio and data, we are
dependent upon third parties to develop additional interfaces that will enable
the deposit of other types of structured relational data, particularly data
generated by enterprise resource planning systems, into the iManage infoCommerce
Server. These third parties may not be able to develop these technologies, and
we may therefore not be able to continue to offer a comprehensive e-business
content and collaboration software solution. Our failure to offer a
comprehensive solution would seriously harm our business.
If our products cannot scale to meet the demands of thousands of concurrent
users, our targeted customers may not license our solutions, which will cause
our revenue to decline.
Our strategy is to target large organizations that, because of the
significant amounts of information and content that they generate and use,
require our e-business content and collaboration software solution. For this
strategy to succeed, our software products must be highly scalable; that is,
they must be able to accommodate thousands of concurrent users. If our products
cannot scale to accommodate a large number of concurrent users, our target
markets will not accept our products and our business and operating results will
suffer.
While we and independent test laboratories have tested the scalability of
our products in simulations, we have not had the opportunity to observe the
performance of our products in the context of an actual large-scale, that is,
tens to hundreds of thousands of concurrent users, customer implementation. If
our customers cannot successfully implement large-scale deployments, or if they
determine that our products cannot accommodate large-scale deployments, our
customers will not license our solutions and this will materially adversely
affect our financial condition and operating results.
Our products might not be compatible with all major platforms, which could
inhibit sales and harm our business.
We must continually modify and enhance our products to keep pace with
changes in computer hardware and software and database technology, as well as
emerging technical standards in the software industry. For example, we have
designed our products to work with databases and servers such as Informix,
Oracle and SQL Server and software applications including Microsoft Office,
Lotus Notes and Novell GroupWise. Any changes to these platforms could require
us to modify our products and could cause us to delay releasing a product until
the updated
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version of that platform or application has been released. As a result,
customers could delay purchases until they determine how our products will
operate with these updated platforms or applications.
In addition, our iManage infoCommerce Server runs on the Windows NT and
Windows 2000 platform. If a customer does not currently use these platforms and
does not choose to adopt these platforms, we will be unable to license our
products to this customer. Furthermore, some of our products do not yet run on
other popular operating systems, such as the UNIX operating system. If another
platform becomes more widely used, we could be required to convert our product
to that platform. We may not succeed in these efforts, and even if we do,
potential customers may not choose to license our product.
Defects in our software products could diminish demand for our products.
Our software products are complex and may contain errors that may be
detected at any point in the life of the product. We cannot assure you that,
despite testing by us, our implementation partners and our current and potential
customers, errors will not be found in new products or releases after shipment,
resulting in loss of revenues, delay in market acceptance and sales, diversion
of development resources, injury to our reputation or increased service and
warranty costs. If any of these were to occur, our business would be adversely
affected and our stock price could fall.
Because our products are generally used in systems with other vendors'
products, they must integrate successfully with these existing systems. System
errors, whether caused by our products or those of another vendor, could
adversely affect the market acceptance of our products, and any necessary
revisions could cause us to incur significant expenses.
If we are unable to respond to rapid market changes due to changing
technology and evolving industry standards, our future success will be adversely
affected.
The market for our products is characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
introductions and changes in customer demands. Our future success will depend to
a substantial degree on our ability to offer products and services that
incorporate leading technology, and respond to technological advances and
emerging industry standards and practices on a timely and cost-effective basis.
You should be aware that:
- our technology or systems may become obsolete upon the introduction of
alternative technologies, such as products that better manage various
types of content; and
- we may not have sufficient resources to develop or acquire new
technologies or to introduce new products or services capable of
competing with future technologies or service offerings.
Our products may lack essential functionality if we are unable to obtain
and maintain licenses to third-party software and applications.
We rely on software that we license from third parties, including software
that is integrated with internally developed software and used in our products
to perform key functions. For example, we license Search '97 from Verity, Inc.
and we license Outside In Viewer Technology and Outside In HTML Export from INSO
Corporation. The functionality of our products therefore depends on our ability
to integrate these third-party technologies into our products. Furthermore, we
may license additional software from third parties in the future to add
functionality to our products. If our efforts to integrate this third-party
software into our products are not successful, our customers may not license our
products and our business will suffer.
In addition, we would be seriously harmed if the providers from whom we
license software ceased to deliver and support reliable products, enhance their
current products or respond to emerging industry standards. Moreover, the
third-party software may not continue to be available to us on commercially
reasonable terms or at all. Our license agreement with Verity terminates in
January 2003 and our agreement with INSO terminates in December 2001. Each of
these license agreements may be renewed only with the other party's written
consent. The loss of, or
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inability to maintain or obtain licensed software, could result in shipment
delays or reductions. Furthermore, we might be forced to limit the features
available in our current or future product offerings. Either alternative could
seriously harm our business and operating results.
If we are unable to protect our intellectual property, we could lose market
share, incur costly litigation expenses or lose valuable assets.
We believe that our continued success depends on protecting our proprietary
technology. We rely on a combination of patent, trademark, service mark, trade
secret and copyright law and contractual restrictions to protect the proprietary
aspects of our technology. In addition, we enter into confidentiality or license
agreements with our employees and consultants, and control access to and
distribution of our software, documentation and other proprietary information.
These legal and practical protections afford only limited protection. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or to obtain and use our proprietary
information. These attempts, if successful, could cause us to lose market share
and thus harm our business and operating results. Litigation may be necessary to
enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of the proprietary rights of others. Any
litigation could result in substantial costs and diversion of resources and
could seriously harm our business and operating results. In addition, as we
expand our international sales, we may find that the laws of many countries,
particularly those in the Asia/Pacific region, do not protect our proprietary
rights to as great an extent as the laws of the United States.
Others may bring infringement claims against us which could be time
consuming and expensive for us to defend.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our products. For example, we may discover that third parties
have developed similar or competing technologies to manage, organize and deliver
information and content. As a result, we may be found to infringe on the
proprietary rights of others. Furthermore, companies in the software market are
increasingly bringing suits that allege infringement of their proprietary
rights, particularly patent rights. We could incur substantial costs to defend
any litigation, and intellectual property litigation could force us to do one or
more of the following:
- cease using key aspects of our e-business content and collaboration
software solution that incorporate the challenged intellectual
property;
- obtain a license from the holder of the infringed intellectual
property right; and
- redesign some or all of our products to avoid infringing.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our business and
operating results would be significantly harmed.
We could be subject to product liability claims if our customers'
information or content is damaged through the use of our products.
If software errors or design defects in our products cause damage to
customers' data and our agreements do not protect us from related product
liability claims, our business, financial condition and operating results may be
materially adversely affected. Errors, bugs or viruses may result in the loss of
market acceptance or the loss of customer data. Our agreements with customers
that attempt to limit our exposure to product liability claims may not be
enforceable in jurisdictions where we operate.
We may be unable to retain our current key personnel and attract additional
qualified personnel to operate and expand our business.
Our success depends largely on the skills, experience and performance of
the members of our senior management and other key personnel, such as Mahmood
Panjwani, our president and chief executive officer, and
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Rafiq Mohammadi, our chief technology officer. We may not be successful in
attracting, assimilating or retaining qualified personnel in the future. None of
our senior management or other key personnel is bound by an employment
agreement. If we lose one or more of these key employees, our business and
operating results could be seriously harmed. In addition, our future success
will depend largely on our ability to continue attracting and retaining highly
skilled personnel. Like other high-technology companies, we face intense
competition for qualified personnel.
Our total revenues will not increase if we fail to successfully manage our
growth and expansion.
Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our limited resources. We have grown
from 119 employees at December 31, 1999 to 144 employees at March 31, 2000. To
be successful, we will need to implement additional management information
systems, improve our operating, administrative, financial and accounting systems
and controls, train new employees and maintain close coordination among our
executive, research and development, accounting, finance, marketing, sales and
operations organizations. Any failure to manage growth effectively could
seriously harm our business and operating results.
As we expand our operations internationally, we will face significant risks
in doing business in foreign countries.
A key component to our business strategy is to expand our existing sales and
marketing activities internationally, particularly in Asia, Australia, Europe,
New Zealand and the United Kingdom. If our efforts are successful, we will be
subject to a number of risks associated with international business activities,
including:
- costs of customizing our products for foreign countries, including
localization, translation and conversion to international and other
foreign technology standards;
- compliance with multiple, conflicting and changing governmental laws
and regulations, including changes in regulatory requirements that may
limit our ability to sell our software in particular countries;
- import and export restrictions, tariffs and greater difficulty in
collecting accounts receivable; and
- foreign currency-related risks if a significant portion of our
revenues become denominated in foreign currencies.
Our failure to successfully address any of these risks will hurt our operations
and may prevent our total revenues from growing.
The proposed Thoughtstar acquisition presents risks to our business.
In April 2000, we agreed to acquire Thoughtstar, Inc. The acquisition has
not yet been consummated and if consummated, we could face the following risks:
- difficulties in the assimilation of acquired personnel, operations,
technologies or products of Thoughtstar;
- difficulty in retaining key personnel both before and after the
acquisition;
- the failure to realize the synergies and other perceived advantages
resulting from the acquisition;
- unanticipated costs associated with the acquisition;
- diversion of management's attention from our other business concerns;
and
- adverse effects on our existing business relationships with suppliers
and customers.
Future acquisitions may be difficult to integrate, disrupt our business,
dilute stockholder value or divert management attention.
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As part of our business strategy, we may find it necessary to acquire
additional businesses, products or technologies that we feel could complement or
expand our business, increase our market coverage, enhance our technical
capabilities or offer other types of growth opportunities. If we identify an
appropriate acquisition candidate, we may not be able to successfully negotiate
the terms of the acquisition, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Furthermore, completing a potential acquisition and integrating an acquired
business will cause significant diversions of management time and other
resources. Since we have never acquired another business, we may experience
unexpected difficulties and obstacles in acquiring and integrating new
operations.
If we consummate a significant acquisition in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with a significant acquisition in which the
consideration included cash, we could be required to use a substantial portion
of our available cash to consummate that acquisition. Acquisition financing may
not be available on favorable terms, if at all. In addition, we may be required
to amortize significant amounts of goodwill and other intangible assets in
connection with future acquisitions, which would seriously harm our operating
results.
We may be unable to meet our future capital requirements which would limit
our ability to grow.
We may need to seek additional funding in the future. We do not know if we
will be able to obtain additional financing on favorable terms, if at all. In
addition, if we issue equity securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of common stock. If we cannot raise funds on
acceptable terms, if and when needed, we may not be able to develop or enhance
our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, which could seriously harm our
business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK
We develop products in the United States and market our products in North
America, and to a lesser extent in Europe and Asia/Pacific regions. As a result,
our financial results could be affected by changes in foreign currency exchange
rates or weak economic conditions in foreign markets. Because substantially all
of our revenues are currently denominated in U.S. dollars, a strengthening of
the dollar could make our products less competitive in foreign markets.
INTEREST RATE RISK
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term instruments, including money market funds and commercial paper, and
long-term investments mature between one and two years. Our interest expense is
also sensitive to changes in the general level of U.S. interest rates because
the interest rate charged varies with the prime rate. Due to the nature of our
investments, we believe that there is not a material risk exposure.
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The table below presents the carrying value and related weighted average
interest rates by year of maturity of our investment portfolio.
<TABLE>
<CAPTION>
2000 2001
------------------------- -------------------------
CARRYING AVERAGE CARRYING AVERAGE
VALUE INTEREST RATE VALUE INTEREST RATE
---------- ------------- ---------- -------------
(in thousands, except interest rates)
<S> <C> <C> <C> <C>
Investment securities:
Cash equivalents $ 32,225 5.86% $ -- --%
========== ==========
Short-term investments $ 3,447 6.53% $ 3,158 6.71%
========== ==========
Long-term investments $ -- --% $ 11,344 7.07%
========== ==========
Debt:
Equipment Line of Credit $ 417 9.50% $ 1,555 9.50%
========== ==========
</TABLE>
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds. Our initial public offering of stock was November 17,
1999 at $11.00 per share for an aggregate initial public offering of $45.5
million.
The managing underwriters in our initial public offering were Robertson
Stephens International, U.S. Bancorp Piper Jaffray and C.E. Unterberg, Towbin.
We registered the shares of the common stock sold in the offering under the
Securities Act of 1933, as amended, on a registration statement on Form S-1 (No.
333-86353). The SEC declared the registration statement effective on November
17, 1999.
We paid a total of $3.2 million in underwriting discounts and commissions
and approximately $1.1 million has been or will be paid for costs and expenses
related to the offering. None of the costs and expenses related to the offering
were paid directly or indirectly to any of our directors, officers, general
partners or their associates, persons owing 10% or more of any class of our
equity securities or any of our affiliates.
After deducting the underwriting discounts and commissions and the offering
expenses, we received net proceeds from the offering of approximately $41.2
million. The net offering proceeds have been used for general corporate
purposes, to provide working capital to develop products and to expand our
operations. Funds that have not been used have been invested in money market
funds, certificate of deposits and other investment grade securities. We also
may use a portion of the net proceeds to acquire or invest in businesses,
technologies, products or services.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index to Exhibits on page 22 hereof. The exhibits listed in the
accompanying Index to Exhibits are filed as part of this report.
(b) Reports on Form 8-K
None.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Mateo, County of San Mateo, State of California, on the 12th day of May, 2000.
iMANAGE, INC.
By: /s/ MARK CULHANE
----------------------------------------
Mark Culhane
Chief Financial Officer and Secretary
21
<PAGE> 24
iMANAGE, INC.
EXHIBITS
TO
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED
MARCH 31, 2000
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------ -----------------------
<S> <C>
3.1* Restated Certificate of Incorporation of iManage, Inc.
3.2* Amended and Restated Bylaws of iManage, Inc.
3.3** Charter Documents of iManage Limited.
3.4 Charter Documents of iManage S.A.R.L.
4.1* Rights Agreement dated December 27, 1996, as amended to date.
4.2* Right of First Refusal and Co-Sale Agreement dated December 27, 1996, as amended to date.
10.1* Form of Indemnification Agreement for directors and executive officers.
10.2* 1997 Stock Option Plan and forms of Incentive Stock Option Agreement and Nonstatutory Stock
Option Agreement thereunder.
10.3* 1999 Employee Stock Purchase Plan and form of subscription agreement thereunder.
10.4 Loan and Security Agreement dated March 31, 1999 between Silicon Valley Bank and the Company, as
amended to date.
10.5** Office Lease for 2121 S. El Camino Real, San Mateo, California between Cornerstone Properties I,
LLC and the Company dated November 30, 1998, as amended to date.
10.6* Office Building Lease for 55 East Monroe Street between TST 55 East Monroe, LLC and the Company
dated January 1999, as amended to date.
10.7* Sublease between the Company and Q-Image Corporation dated December 5, 1998.
27.1 Financial Data Schedule.
- ---------------
</TABLE>
* As filed with iManage, Inc.'s Registration Statement on Form S-1 (File No.
333-86353) on September 1, 1999, as amended.
** As filed with iManage, Inc.'s Report on Form 10-K for the year ended
December 31, 1999 on March 22, 2000.
22
<PAGE> 1
Exhibit 3.4
================================================================================
iMANAGE SARL
A LIMITED LIABILITY COMPANY WITH A CAPITAL OF 10,000 EUROS
REGISTERED OFFICE: 114 BIS, RUE MICHEL ANGE
75116 PARIS - FRANCE
Company in formation
ARTICLES OF INCORPORATION
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
SUMMARY
<S> <C> <C>
Article 1. Form.........................................................................................3
Article 2. Purpose......................................................................................3
Article 3. Corporate name...............................................................................3
Article 4. Registered office............................................................................4
Article 5. Term.........................................................................................4
Article 6. Contribution.................................................................................4
Article 7. Distribution of share capital................................................................4
Article 8. Modifications of capital.....................................................................4
Article 9. Rights and obligations attached to shares....................................................4
Article 10. Transfer and assignment of shares............................................................5
Article 11. Current accounts.............................................................................5
Article 12. Management...................................................................................5
Article 13. Collective decisions.........................................................................6
Article 14. Financial year...............................................................................7
Article 15. Allocation and distribution of profits.......................................................7
Article 16. Statutory auditors...........................................................................7
Article 17. Winding-up - Liquidation.....................................................................7
Article 18. Disputes.....................................................................................8
Article 19. Undertaking preceding signature of the articles and registration of the
company......................................................................................8
Article 20. Fees.........................................................................................8
Article 21. Powers of attorney for legal formalities.....................................................8
</TABLE>
<PAGE> 3
- -FREE TRANSLATION 2
iMANAGE SARL
A limited liability company with a capital of 10,000 Euros
Registered office: 114 Bis, Rue Michel Ange
75116 PARIS - France
Company in formation
THE UNDERSIGNED :
The company IMANAGE INC.,
An company existing under the law of Delaware,
Which has its registered office at C/o Incorporating services Ltd 15 East North
Street Dover County of Kent Delaware - United States of America,
Represented by M. Mark CULHANE, duly empowered (hereinafter "the undersigned"),
HEREBY DECLARES THE CREATION OF A COMPANY WITH THE FOLLOWING LEGAL FORM:
<PAGE> 4
- -FREE TRANSLATION 3
ARTICLE 1. FORM
The company is a limited liability company and is subject to current law and to
these articles of incorporation.
ARTICLE 2. PURPOSE
The purpose of the company in France and abroad is:
- - the purchase and sell of software, hardware and computer services ;
- - the commissionnaire activity either to purchase or sell software, hardware
and computer services ;
- - the sell of services which include assistance to customer, setting up of
software, technical and administrative assistance as well as any other
activity linked to e-Business via intranet and internet networks ;
- - the direct or indirect participation of the company in any financial,
immovable or movable, commercial or industrial operations ;
- - acquisition and management of all French or foreign portfolios ;
- - creation, acquisition, rental of business, installation, exploitation of
all establishments and business ;
- - acquisition, exploitation and sale of any patents of know how ;
- - realisation of all financial, commercial, industrial, movable or immovable
that could be related, directly or indirectly, to this purpose, or to any
similar or connected purpose , which contribute to its extension or
development.
ARTICLE 3. CORPORATE NAME
The name of the company is:
iMANAGE
All deeds and documents issued by the company must include the words "Societe a
Responsabilite Limitee" (limited liability company) or the initials S.A.R.L.
immediately before or after the name of the company.
<PAGE> 5
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ARTICLE 4. REGISTERED OFFICE
The registered office of the company is: 114 BIS, RUE MICHEL ANGE - 75116 PARIS.
The registered office may be transferred to any other address within the same
"departement" by simple decision of the management, the management then being
authorized to amend these articles of incorporation accordingly. The registered
office may be transferred to any other place by decision of an extraordinary
general meeting of the shareholders.
ARTICLE 5. TERM
The company will exist for a period of 99 years from the date of its
registration with the Commercial Registry, unless wound up or extended.
ARTICLE 6. CONTRIBUTION
The undersigned contributed to the company, at the moment of its creation, the
sum of 10,000 Euros which sum has been deposited in an account in the name of
the company to be created, in accordance with the law, with the bank Barclays
Bank.
ARTICLE 7. DISTRIBUTION OF SHARE CAPITAL
The share capital is fixed at 10,000 Euros divided into 1,000 shares with a par
value of 10 Euros, fully paid up and allocated to the sole shareholder, the
company iManage Inc..
ARTICLE 8. MODIFICATIONS OF CAPITAL
The share capital may be increased or reduced by any means authorized by the law
and as a result of a collective extraordinary decision of the shareholders.
ARTICLE 9. RIGHTS AND OBLIGATIONS ATTACHED TO SHARES
Each shares gives its holder the right to a share in the profits and assets of
the company in proportion to the total number of shares.
<PAGE> 6
- -FREE TRANSLATION 5
ARTICLE 10. TRANSFER AND ASSIGNMENT OF SHARES
10.1. The transfer of shares is effected either by a notarized deed or by
private agreement. In order to be binding upon the company, notification of any
such transfer should be made by bailiff, accepted by the company by means of a
notarized deed or be deposited at the registered office of the company in
accordance with the conditions set down by law. Opposition by any of the
participating parties is possible once notification as been deposited with the
clerk of Court at the Commercial Registry.
10.2. The shares of the sole shareholder can be freely transferred.
10.3. Where the company has many shareholders, the shares can be freely
transferred between shareholders, to the husband / wife, ascendant or
descendant.
10.4. The other transfer of shares would be subject to the provision of article
45 of the law of 24 July 1966.
10.5. The shares can be freely transferred following death of the shareholder,
liquidation of joint estate.
ARTICLE 11. CURRENT ACCOUNTS
Apart from their contributions, the shareholders may, following the agreement of
the other shareholders or of the manager, pay or make available to the Company
all sums of which it may have need. Terms and conditions governing this sum are
either dated by a shareholders' decision or an agreement between the manager and
the shareholders. The agreement of the manager is subject to the provision of
the Law of July 24, 1966 relating to the regulated provision.
ARTICLE 12. MANAGEMENT
12.1. The company is managed and administered by one or more managers, physical
persons, shareholders or not. The managers are nominated for unlimited period.
The first managers of the company are nominated by separate deed annexed to
these articles of incorporation.
Subsequent managers are named and removable by a decision of shareholders
representing more than half of the share capital.
Managers may be remunerated, the said remuneration being set and changed by a
shareholders' decision.
<PAGE> 7
- -FREE TRANSLATION 6
12.2. The managers have the widest powers concerning relations with third
parties to act on behalf of the company, only limited by those powers expressly
reserved by law for the shareholders.
12.3. Each manager has the right to sign on behalf of the company, within the
limits of the preceding paragraph and the social purpose of the company.
The manager could not, unless prior authorisation of the sole shareholder or of
a general meeting: contracting loans, buy, exchange or sell immovable or
business, granting real warranties on the corporate assets ou made contribution
to the company.
ARTICLE 13. COLLECTIVE DECISIONS
13.1. When the company has only one shareholder, the single shareholder holds
all the powers normally delegated to the annual shareholders meeting. In such a
case, the provisions relating to communication obligations, the means of calling
the meeting and quorum do not apply. A single shareholder cannot delegate
powers.
13.2. Where the company has several shareholders, the will of the shareholders
is expressed by means of collective decisions which can be made, at the
discretion of the management, either by means of a general meeting, by written
consultation or by agreement of all the shareholders, unless when a general
meeting is legally required.
13.3. The decisions are taken by shareholders representing more than half of the
number of shares.
If this majority is not reached, the shareholders are consulted a second time
and any decisions are valid if made by a majority of votes cast, no matter what
proportion of the total number of shares are represented.
However:
. any decisions nominating or removing a manager must always be taken by
shareholders representing more than half of the total number of shares.
. if the vote concerns the transfer or assignment of shares, a majority of
shareholders representing at least three quarters of the number of shares
is required.
. the change in the nationality of the company, increasing the undertakings
of a shareholder, requires the unanimous vote of the shareholders.
13.4. The shareholders may be represented by any person of their choice, even
not shareholder.
<PAGE> 8
- -FREE TRANSLATION 7
ARTICLE 14. FINANCIAL YEAR
Each financial year will last for a period of twelve months beginning on 1st
January and ending on 31 December. The first financial year will exceptionally
last from the date of incorporation of the company to 31 December 2000.
A general meeting called to approve the accounts must be convene within 6 months
following the closure of the financial year.
In case of a sole shareholder, the accounts must be approved in the same delay.
ARTICLE 15. ALLOCATION AND DISTRIBUTION OF PROFITS
Distributable profits comprise the profits for the financial year, decreased by
any previous losses and sums to be added to the reserve, in accordance with the
law and these articles of incorporation, and increased by any profits carried
forward.
Profits are allocated amongst the shareholders in proportion to the number of
shares held.
The annual shareholders' meeting can decide to distribute sums withdrawn from
the reserves; the meeting must then expressly indicate from which part of the
reserves such sums are to be withdrawn. However, dividends are by priority paid
from the profits of the fiscal year in question.
ARTICLE 16. STATUTORY AUDITORS
A statutory auditor and deputy statutory auditor will be appointed when, at the
end of the financial year, due to the total balance sheet, the turnover before
tax and the average number of employees the company will be legally obliged to
do so.
ARTICLE 17. WINDING-UP - LIQUIDATION
The Company is wound-up either at the end of its term (unless extended), upon
completion or extinction of its purpose, or by court order.
The anticipated winding-up may be decided at any moment by shareholders
representing three-quarters of shares.
In the event that all shares are held by one person and the company is
dissolved, the transfer of the patrimony can be effected without liquidation of
the company, subject to the right granted to the creditors to oppose the
liquidation of the company in accordance with the provisions of Article 1844-5
of the Civil Code.
<PAGE> 9
- -FREE TRANSLATION 8
ARTICLE 18. DISPUTES
All disputes concerning the interpretation or performance of these articles of
incorporation or relating to the company's affairs, either between shareholders
or between shareholders and the company, during the life of the company or
during its liquidation, will be referred to the appropriate competent court.
ARTICLE 19. UNDERTAKING PRECEDING SIGNATURE OF THE ARTICLES AND REGISTRATION OF
THE COMPANY
The Company only acquires legal personality on registration with the Commercial
Registry.
However, the acts listed in the annexe to these articles of incorporation, were
undertaken before signature of these articles on behalf of the Company. The list
indicates the resulting obligation for the Company. Registration of the Company
will entail full responsibility for the said undertakings.
ARTICLE 20. FEES
The registration, publication out of pocket expenses and fees related to these
articles of incorporation are at the charge of the company.
ARTICLE 21. POWERS OF ATTORNEY FOR LEGAL FORMALITIES
The undersigned hereby grant all powers to Mr Patrick BAUDOUIN in order to
effect the following operations :
- - to publish the incorporation notice in a legal gazette and deposit all
documents required by law with the Clerk of the Commercial Court,
- - to request registration of the company with the Commercial Registry,
- - to pay all expenses and fees incurred as a result of the incorporation of
the company,
- - sign all documents, receipts and waivers,
- - and generally, to do all that is necessary.
Signed in
On
The sole shareholder : iMANAGE INC.
- -------------------------------
represented by Mr. Mark Culhane
<PAGE> 10
- -FREE TRANSLATION 9
iMANAGE SARL
A LIMITED LIABILITY COMPANY WITH A CAPITAL OF 10,000 EUROS
REGISTERED OFFICE: 114 BIS, RUE MICHEL ANGE
75116 PARIS - FRANCE
Company in formation
ANNEX E
LIST OF UNDERTAKINGS MADE ON BEHALF OF THE
COMPANY IN FORMATION PRECEDING SIGNATURE
OF THE ARTICLES OF INCORPORATION
- - Signature with the company Multibureaux of a lease agreement concerning
premises located at Paris (75116) - 114 Bis Rue Michel Ange, for a length
of six months renewable,
- - Opening of a bank account on behalf of the company in formation near the
bank Barclays Bank
<PAGE> 1
EXHIBIT 10.4
This LOAN AND SECURITY AGREEMENT, dated as of March 31, 1999 (this "Agreement"),
is between SILICON VALLEY BANK ("Bank") and NETRIGHT TECHNOLOGIES, INC., a
Delaware corporation ("Borrower").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1. Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration (limited to audit fees), and
enforcement of the Loan Documents; and Bank's reasonable attorneys' fees and
expenses incurred in amending, enforcing or defending the Loan Documents,
(including fees and expenses of appeal or review, or those incurred in any
Insolvency Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such information
if such equipment is necessary for the review of such information.
"Borrowing Base" means an amount equal to 80% of Eligible
Accounts as determined by Bank with reference to the most recent Borrowing Base
Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
1
<PAGE> 2
"Collateral" means the property described on Exhibit A attached
hereto.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided that the
term "Contingent Obligation" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determined
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith;
provided that such amount shall not in any event exceed the maximum amount of
the obligations under the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Loans
due within twelve months from any applicable date made under this Agreement,
including all Indebtedness that is payable upon demand or within one year from
the date of determination thereof unless such Indebtedness is renewable or
extendable at the option of Borrower or any Subsidiary to a date more than one
year from the date of determination, but excluding Subordinated Debt and
deferred revenue.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
2
<PAGE> 3
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided that
standards of eligibility may be revised from time to time by Bank in Bank's
reasonable judgment effective upon 10 days prior notice to Borrower (no such
revision shall be retroactive, but shall apply only to requests for advances
made after such revision). Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay
within 90 days of invoice date;
(b) Accounts with respect to an account debtor, 50% of whose
Accounts the account debtor has failed to pay within 90 days of invoice date
(or, if approved by Bank, in the exercise of its absolute discretion, within 120
days of invoice date);
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed 25% of all Accounts, to
the extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank;
(d) Accounts with respect to which the account debtor does
not have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
3
<PAGE> 4
"Equipment" means all present and future machinery, computer
equipment, software, office equipment, tenant improvements, furniture, fixtures,
vehicles, tools, parts and attachments in which Borrower has any interest.
"Equipment Availability Date" has the meaning set forth in
Section 2.1.2.
"Equipment Commitment" means a credit extension of up to
$1,000,000.00.
"Equipment Loan" has the meaning set forth in Section 2.1.2.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning set forth in Section 8.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means all right, title, and
interest of Borrower in any of the following, whether now existing or hereafter
acquired or created:
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products;
(c) Any and all design rights;
(d) Any and all claims for damages by way of past, present
and future infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
4
<PAGE> 5
(e) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance (or any agreement to grant any of the
foregoing, whether or not contingent on the happening of any future event).
"Loan" means a Revolving Loan or an Equipment Loan.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired;
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole, (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan
5
<PAGE> 6
Documents, (iii) the enforceability or binding effect of the Loan Documents, or
(iv) the attachment, perfection, or priority of Bank's security interests in the
Collateral or the value of the Collateral.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations- in-part of the same.
"Payment Date" means the last calendar day of each month.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Subordinated Debt;
(c) Indebtedness existing on the Closing Date and disclosed
in the Schedule;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness secured by Permitted Liens;
(f) Indebtedness conforming with the requirements set forth
in the attached Schedule of Permitted Indebtedness; and
(g) Extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (c) through (f) 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 Investment" means:
(a) Direct obligations of the United States Treasury,
including bills, notes, and bonds;
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<PAGE> 7
(b) Obligations issued or guaranteed by agencies or
instrumentalities of the United States government;
(c) Bank obligations, including certificates of deposit,
bank notes, and bankers acceptances. Investments in these securities are limited
to banks whose long term debt is rated "A" or higher by Moody's and Standard &
Poor's and whose short-term obligations are rated "P1" by Moody's and "A1" or
higher by Standard & Poor's;
(d) Corporate obligations, including intermediate-term notes
rated "A" or higher by Moody's and Standard & Poor's and commercial paper rated
"P1" or higher by Moody's and "A1" or higher by Standard & Poor's;
(e) Money market funds over $1,000,000,000 in assets, with
an historically constant dollar net asset value, consisting of acceptable
securities as described in clauses (a) through (d), above, as long as the fund's
manager has been in business over five years, has name recognition, and has
performance that is easily tracked; and
(f) United States and dollar-denominated international
corporate debt of all types, as long as the issuer meets credit rating and
marketability guidelines.
Derivative instruments are not Permitted Investments. This would cover all
investments where the value is based on an underlying variable causing the
coupon and/or the maturity value to be unknown for the life of the security. The
maximum maturity of individual securities in Borrower's portfolio may not exceed
twenty-four months. The average maturity of Borrower's portfolio may not exceed
twelve months. For securities that have put dates or reset dates, the put date
or reset date will be used, instead of the final maturity date, for maturity
guideline purposes. There is no limit to the percentage of Borrower's portfolio
which may be maintained in securities issued by the United States Treasury or by
its agencies and instrumentalities. No one issuer or group of issuers from the
same holding company is to exceed 15% of Borrower's portfolio at the time of
purchase, with the exception of Government securities. No investment will be
permitted in common stocks, preferred stocks, options (put or calls),
commodities, foreign securities, futures or mutual funds whose underlying
securities are not Permitted Investments.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
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(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Leases or subleases and [non-exclusive] licenses or
sublicenses granted to others in the ordinary course of Borrower's business not
interfering in any material respect with the business of Borrower and its
Subsidiaries taken as a whole, and any interest or title of a lessor, licensor
or under any lease or license provided that such leases, subleases, licenses and
sublicenses do not prohibit the grant of the security interest granted
hereunder; and
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(f) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not constituting a Material Adverse Effect;
(g) Liens that are not prior to the Lien of Bank which
constitute rights of set-off of a customary nature or bankers' Liens with
respect to amounts on deposit, whether arising by operation of law or by
contract, in connection with arrangements entered into with banks in the
ordinary course of business; and
(h) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (a) and (c) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
consolidated unrestricted cash, cash equivalents, accounts receivable and
short-term investments with maturities of fewer than 90 days of Borrower
determined in accordance with GAAP.
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"Responsible Officer" means each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Commitment" means a credit extension of up to
$5,000,000.00.
"Revolving Loan" means a loan advance under the Revolving
Commitment.
"Revolving Maturity Date" means the date that is the one year
anniversary of the Closing Date.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date as
of which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
"UCC" means the California Uniform Commercial Code.
"Year 2000 Problem" means the inability of computers, as well as
embedded microchips in non-computing devices, to properly perform date-sensitive
functions with respect to certain dates prior to and after December 31, 1999.
1.2. Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include
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the notes and schedules thereto. In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each mean "to but excluding." Periods
of days referred to in this Agreement shall be counted in calendar days unless
otherwise stated. References to the plural include the singular and to the
singular include the plural, references to any gender include any other gender,
the part includes the whole, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Article, section, subsection,
clause, exhibit and schedule references are to this Agreement, unless otherwise
specified. All of the exhibits and schedules attached hereto shall be deemed
incorporated herein by reference. All terms contained in this Agreement which
are not otherwise specifically defined herein (including the term "good faith")
shall have the meanings provided by the UCC to the extent the same are used or
defined therein.
1.3. No Presumption Against Any Party. Neither this Agreement nor any
other Loan Document nor any uncertainty or ambiguity herein or therein shall be
construed or resolved using any presumption against any party hereto or thereto,
whether under any rule of construction or otherwise. On the contrary, this
Agreement and the other Loan Documents have been reviewed by each of the parties
and their counsel and, in the case of any ambiguity or uncertainty, shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
2. LOAN AND TERMS OF PAYMENT
2.1. Loans. Borrower promises to pay to the order of Bank, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Loans made by Bank to Borrower hereunder. Borrower shall also pay interest
on the unpaid principal amount of such Loans at rates in accordance with the
terms hereof.
2.1.1. (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Revolving Loans to Borrower in an aggregate
outstanding amount not to exceed the Revolving Commitment or the Borrowing Base,
whichever is less. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time during the term of this Agreement.
(b) Whenever Borrower desires an Revolving Loan,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Pacific time, on the Business Day that such Revolving Loan is to be
made. Each such notification shall be promptly confirmed by a Payment/Loan Form
in substantially the form of Exhibit B hereto. Bank is authorized to make Loans
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Loans are necessary to meet Obligations which have become
due and remain unpaid. Bank shall be entitled to rely on any telephonic notice
given by a person who Bank reasonably believes to be a Responsible Officer or a
designee thereof, and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of such reliance. Bank will credit
the amount of Loans made under this Section 2.1 to Borrower's deposit account.
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(c) Interest Rate. Except as set forth in Section
2.3(b), the outstanding principal amount of the Revolving Loans shall bear
interest, on the average daily balance thereof, at a per annum rate equal to
0.25 percentage point above the Prime Rate.
(d) The Revolving Commitment shall terminate on the
Revolving Maturity Date, at which time all Revolving Loans and accrued interest
thereon shall be immediately due and payable.
2.1.2. Equipment Loans.
(a) Subject to and upon the terms and conditions of
this Agreement, at any time from the date hereof through February 28, 2000, (the
"Equipment Availability End Date"), but no more frequently than once during each
calendar month, Bank agrees to make advances (each an "Equipment Loan") to
Borrower in an aggregate amount not to exceed the Equipment Commitment. Borrower
shall deliver to Bank, at the time of each Equipment Loan request, an invoice
for the equipment to be financed by such Equipment Loan. The Equipment Loans
shall be used only to purchase or refinance Equipment purchased on or after 90
days prior to the date hereof (provided, that the initial advance to Borrower
under this Section 2.1.2 may be utilized to refinance Equipment purchased by
Borrower at any time on or after January 1, 1998) and shall not exceed 100% of
the invoice amount of such equipment approved from time to time by Bank,
including sales taxes, freight, and installation expenses.
(b) Interest Rate. Except as set forth in Section
2.3(b), the outstanding principal amount of the Equipment Loans shall bear
interest, on the average daily balance thereof, at a per annum rate equal to
0.50 percentage points above the Prime Rate. Accrued interest on each Equipment
Loan shall be payable monthly on each Payment Date and on the date the final
instalment of principal on the Equipment Loans is due.
(c) Any Equipment Loans that are outstanding on the
Equipment Availability End Date will be payable in 36 equal monthly installments
of principal, on each Payment Date, beginning on the Payment Date of following
the Equipment Availability End Date and continuing until February [___], 2003,
when all Equipment Loans shall be immediately due and payable. Equipment Loans,
once repaid, may not be reborrowed.
(d) When Borrower desires to obtain an Equipment
Loan, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time one
Business Day before the day on which the Equipment Loan is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a copy of the
invoice for the Equipment to be financed.
2.2. Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this
Agreement is greater than the lesser of (i) the Revolving Commitment or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3. Default Rates, Payments, and Calculations.
(a) Default Rate. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to five
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
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(b) Payments. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number _____________________ for
payments of principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank
has made against Borrower's accounts. Any such debits against Borrower's
accounts in no way shall be deemed a set-off. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
(c) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a 360-day
year for the actual number of days elapsed.
2.4. Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations unless such payment is of immediately
available federal funds or unless and until such check or other item of payment
is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00 noon
Pacific time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5. Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to $15,000.00, which
fee shall be due on the Closing Date and shall be fully earned and
non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's
customary fees and reasonable out-of-pocket expenses for Bank's audits of
Borrower's Accounts, and for each appraisal of Collateral and financial analysis
and examination of Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6. Additional Costs. In case of any change in any law, regulation,
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
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governmental authority (whether or not having the force of law) in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7. Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect until the Loans and all interest thereon have
been fully and finally paid. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Loans under this Agreement immediately
and without notice upon the occurrence and during the continuance of an Event of
Default.
3. CONDITIONS OF LOANS
3.1. Conditions Precedent to Initial Loan. The obligation of Bank to
make the initial Loan is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect
to articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an intellectual property security agreement;
(d) financing statements (Forms UCC-1) for filing in the
States of California and Illinois;
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof; and
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(g) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2. Conditions Precedent to all Loans. The obligation of Bank to
make each Loan, including the initial Loan, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Loan Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section
5 shall be true and correct in all material respects on and as of the date of
such Payment/Loan Form and on the effective date of each Loan as though made at
and as of each such date (except to the extent they relate specifically to an
earlier date, in which case such representations and warranties shall continue
to have been true and accurate as of such date), and no Default shall have
occurred and be continuing, or would result from such Loan, The making of each
Loan shall be deemed to be a representation and warranty by Borrower on the date
of such Loan as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1. Grant of Security Interest. Borrower grants and pledges to Bank
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will, subject to Permitted
Liens, constitute a valid, first priority security interest in Collateral
acquired after the date hereof. Borrower acknowledges that Bank may, following
the occurrence and during the continuance of an Event of Default, place a "hold"
on any Deposit Account pledged as Collateral to secure the Obligations.
Notwithstanding termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
4.2. Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3. Right to Inspect. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1. Due Organization and Qualification. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to
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do business in, and is in good standing in, any state in which the conduct of
its business or its ownership of property requires that it be so qualified.
5.2. Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound except to
the extent that certain intellectual property agreements prohibit the assignment
of the rights thereunder to a third party without Borrower's or other party's
consent and the Loan Documents constitute an assignment Borrower is not in
default under any agreement to which it is a party or by which it is bound,
which default would reasonably be expected to have a Material Adverse Effect.
5.3. No Prior Encumbrances. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4. Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5. Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6. Intellectual Property. Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party. Except for and upon the filing with the
United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights and
Mask Works necessary to perfect the security interests created hereunder, and
except as has been already made or obtained, no authorization, approval or other
action by, and no notice to or filing with, any United States governmental
authority or United States regulatory body is required either (i) for the grant
by Borrower of the security interest granted hereby or for the execution,
delivery or performance of Loan Documents by Borrower in the United States or
(ii) for the perfection in the United States or the exercise by Bank of its
rights and remedies hereunder.
5.7. Name; Location of Chief Executive Office. Except as disclosed in
the Schedule, Borrower has not done business and will not without at least 30
days prior written notice to Bank do business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.8. Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision would reasonably be expected to have a Material
Adverse Effect.
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5.9. No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.10. Solvency. The fair saleable 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 contemplated by this Agreement; and Borrower is able to pay its
debts (including trade debts) as they mature.
5.11. Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that would reasonably be expected to have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System). Borrower has complied with all the provisions of
the Federal Fair Labor Standards Act. Borrower has not violated any statutes,
laws, ordinances or rules applicable to it, violation of which could have a
Material Adverse Effect.
5.12. Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.13. Taxes. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected therein,
except those being contested in good faith by proper proceedings with adequate
reserves under GAAP.
5.14. Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15. Government Consents. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as
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currently conducted except where the failure to obtain such consent, approval or
authorization, to make any such declaration or filing or to give any such notice
would not reasonably be expected to have a Material Adverse Effect.
5.16. Year 2000 Compliance. Borrower has conducted a comprehensive
review and assessment of Borrower's systems and equipment applications and made
inquiry of Borrower's key suppliers, vendors and customers with respect to the
Year 2000 Problem. Based on that review and inquiry, Borrower does not believe
the Year 2000 Problem, including costs of remediation, will have a Material
Adverse Effect. Borrower has developed adequate contingency plans to ensure
uninterrupted and unimpaired business operation in the event of a failure of its
own or a third party's systems or equipment due to the Year 2000 Problem,
including those of vendors, customers, and suppliers, as well as a general
failure of or interruption in its communications and delivery infrastructure.
5.17. Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank by
Borrower in connection with the transaction contemplated by this Agreement,
taken as a whole, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading it being recognized by the Bank
that the projections and forecasts provided by Borrower are based on Borrower's
reasonable and good faith assessment of the probabilities of future events and
that actual results during the period or periods covered by any such projections
and forecasts may differ from the projected or forecasted results).
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1. Good Standing. Borrower shall maintain, or cause to be
maintained, its and each of its Subsidiaries' corporate existence and good
standing in its jurisdiction of incorporation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
have a Material Adverse Effect. Borrower shall maintain, and shall cause each of
its Subsidiaries to maintain, to the extent consistent with prudent management
of Borrower's business, in force all licenses, approvals and agreements, the
loss of which would reasonably be expected to have a Material Adverse Effect.
6.2. Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect.
6.3. Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within 30 days after
the end of each month, a company prepared consolidated balance sheet and income
statement covering Borrower's consolidated operations during such period, in a
form and certified by an officer of Borrower reasonably acceptable to Bank; (b)
as soon as available, but in any event within 120 days after the end of
Borrower's fiscal year, audited consolidated financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting
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firm reasonably acceptable to Bank; (c) within five days of filing, copies of
all statements, reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt and all reports
on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of $100,000.00 or more; (e)
prompt notice of any material change in the composition of the Intellectual
Property Collateral, including, but not limited to, any subsequent ownership
right of Borrower in or to any Copyright, Patent or Trademark not specified in
any intellectual property security agreement between Borrower and Bank or
knowledge of an event that materially adversely affects the value of the
Intellectual Property Collateral; and (f) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
Within 20 days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable.
Within 30 days after the last day of each month, Borrower shall
deliver to Bank with the monthly financial reports a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more often than every six months unless an Event of Default has
occurred and is continuing.
6.4. Inventory; Returns. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than
$100,000.00.
6.5. Taxes. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is (I) contested in good faith
by appropriate proceedings , (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6. Insurance.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating
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to Borrower's ownership and use of the Collateral in amounts and of a type that
are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as are reasonably satisfactory to Bank.
All such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least 30
days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations; provided that 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 to the replacement or repair of
destroyed or damaged property.
6.7. Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8. Quick Ratio. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Assets to Current Liabilities of at least 2.0
to 1.0.
6.9. Liquidity Coverage. Borrower shall maintain, as of the last day
of each calendar month, a ratio of consolidated cash, cash equivalents and
short-term investments, plus 80% of Eligible Accounts, minus the outstanding
amount of all Revolving Loans, to the outstanding amount of all Equipment Loans,
of at least 2.0 to 1.0.
6.10. Profitability. Borrower shall be profitable (profitability to be
determined in accordance with GAAP and to be net of charges of software
development costs) for each fiscal quarter, except Borrower may suffer a loss
not to exceed $150,000.00 for one fiscal quarter in any fiscal year, commencing
with the fiscal quarter ending March 31, 1999.
6.11. Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within 10 days of the date of this Agreement. Borrower shall register
or cause to be registered with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Borrower from time to time in
connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents, Copyrights, and Mask
Works, (ii) use its best efforts to detect
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infringements of the Trademarks, Patents, Copyrights and Mask Works and promptly
advise Bank in writing of material infringements detected and (iii) not allow
any Trademarks, Patents, Copyrights, or Mask Works to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Bank determines that reasonable business practices
suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this section to take but which Borrower fails to take, after 15 days' notice to
Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs
and reasonable expenses incurred in the reasonable exercise of its rights under
this section.
6.12. Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Loans,
Borrower will not do any of the following:
7.1. Dispositions. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business, (ii) of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; (iii) that constitute payment of normal and
usual operating expenses in the ordinary course of business;; or (iii) of
worn-out or obsolete Equipment.
7.2. Changes in Business, Ownership, or Management, Business
Locations. Engage in any business, or permit any of its Subsidiaries to engage
in any business, other than the businesses currently engaged in by Borrower and
any business substantially similar or related thereto (or incidental thereto),
or suffer a material change in Borrower's ownership or management. Borrower will
promptly notify Bank if it relocates its chief executive office or adds any new
offices or business locations.
7.3. Mergers or Acquisitions. Without the prior consent of Bank (not
to be unreasonably withheld), merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4. Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5. Encumbrances. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6. Distributions. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock, except for repurchases under
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Borrower's employee stock option/purchase plans in an aggregate amount not in
excess of $250,000.00 during any twelve month period.
7.7. Investments. Without the prior consent of Bank (not to be
unreasonably withheld), directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8. Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9. Intellectual Property Agreements. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts, except to
the extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgement.
7.10. Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11. Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12. Compliance. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Loan for such
purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an "Event of
Default" by Borrower under this Agreement:
8.1. Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2. Covenant Default.
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(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten days after the occurrence
thereof; provided that if the default cannot by its nature be cured within the
ten day period or cannot after diligent attempts by Borrower be cured within
such 10 day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed 30 days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Loans will be required to be made
during such cure period);
8.3. Material Adverse Effect. If there occurs any event which has a
Material Adverse Effect;
8.4. Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5. Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Loans will be made prior to the dismissal of such Insolvency Proceeding);
8.6. Other Agreements. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of $100,000.00 or that could
have a Material Adverse Effect;
8.7. Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8. Judgments. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least $100,000.00 shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a period
of ten days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment); or
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8.9. Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate or writing delivered to Bank by Borrower
or any Person acting on Borrower's behalf pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1. Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge in order
to exercise any of Bank's rights or remedies provided herein, at law, in equity,
or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including
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Borrower's premises) as Bank determines is commercially reasonable, and apply
the proceeds thereof to the Obligations in whatever manner or order it deems
appropriate;
(h) Bank may credit bid and purchase at any public sale, or
at any private sale as permitted by law;
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower; and
(j) Bank shall have a non-exclusive, royalty-free license to
use the Intellectual Property Collateral to the extent reasonably necessary to
permit Bank to exercise its rights and remedies upon the occurrence of an Event
of Default.
9.2. Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to modify, in its
sole discretion, any intellectual property security agreement entered into
between Borrower and Bank without first obtaining Borrower's approval of or
signature to such modification by amending Exhibit A, Exhibit B and Exhibit C
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents, Trademarks, or Mask Works in which Borrower no longer
has or claims any right, title or interest; (g) to file, in its sole discretion,
one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of Borrower where
permitted by law; and (h) to transfer the Intellectual Property Collateral into
the name of Bank or a third party to the extent permitted under the UCC provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in Section 4.2 regardless of whether an Event of Default
has occurred. The appointment of Bank as Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide Loans hereunder is terminated.
9.3. Accounts Collection. Effective only upon the occurrence and
during the continuance of an Event of Default, Bank may notify any Person owing
funds to Borrower of Bank's security interest in such funds and verify the
amount of such Account. Borrower shall collect all amounts owing to Borrower for
Bank, receive in trust all payments as Bank's trustee, and if requested or
required by Bank, immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4. Bank Expenses. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) upon reasonable notice to Borrower, make payment of the same or any part
thereof; (b) set up such reserves under the Revolving Commitment as Bank deems
necessary to protect Bank from the exposure created by such failure; or (c)
obtain and maintain insurance policies
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of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5. Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6. Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the UCC, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7. Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below for such party on the signature pages hereof. The parties hereto
may change the address at which they are to receive notices hereunder, by notice
in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
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RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Bank's prior written consent, which consent may be
granted or withheld in Bank's sole discretion. Bank may, upon the consent of
Borrower (not to be unreasonably withheld), sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Bank's obligations,
rights and benefits hereunder.
12.2. Indemnification. Borrower shall , indemnify ,defend, protect and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3. Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4. Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5. Amendments in Writing, Integration. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7. Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run;
provided that so long as the obligations referred to in the first sentence of
this Section 12.7 have been satisfied, and Bank has no commitment to make any
Credit Extensions or to make any other loans to Borrower, Bank shall release all
security interests granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.
26
<PAGE> 27
12.8. Confidentiality. In handling any confidential information Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as Bank may deem
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
27
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
NETRIGHT TECHNOLOGIES, INC.
By /s/ Mark Culhane
-----------------------------------
Title: Chief Financial Officer
-------------------------------
By /s/ Mahmood Panjwani
-----------------------------------
Title: President
-------------------------------
Address for Notices: 2121 South El Camino Real, Suite 400
San Mateo, CA 94403
Attention: Mark Culhane, CFO
SILICON VALLEY BANK
By /s/ Chris Stedman
-----------------------------------
Title: AVP
-------------------------------
Address for Notices: 3003 Tasman Drive
Santa Clara, CA 95054-1191
Attention: John China
28
<PAGE> 29
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower, whether now existing or hereafter acquired or created and wherever
located, in and to the following:
(a) All goods, equipment, machinery, fixtures, vehicles
(including motor vehicles and trailers), and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing;
(b) All inventory, merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
including such inventory as is temporarily out of Borrower's custody or
possession or in transit and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing and any documents of title representing any of the
above;
(c) All contract rights, general intangibles, goodwill,
trademarks, servicemarks, trade styles, trade names, patents, patent
applications, leases, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights to
payment of any kind;
(d) All accounts, contract rights, royalties, license rights
and all other forms of obligations owing to Borrower, whether or not arising out
of the sale or lease of goods, the licensing of technology or the rendering of
services by Borrower, and whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities,
investment property, letters of credit, certificates of deposit, instruments and
chattel paper and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished; all trade secret rights,
including all rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information; all mask work or
similar rights available for the protection of semiconductor chips; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
(g) All Borrower's Books relating to the foregoing and any
and all claims, rights and interests in any of the above and all substitutions
for, additions and accessions to and proceeds thereof.
1
<PAGE> 30
EXHIBIT B
LOAN PAYMENT/LOAN ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
---------------------
FAX#: (408) TIME:
---------------------
FROM:
-----------------------------------
BORROWER'S NAME
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE
PHONE:
--------------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT#
---------------------- -----------------------------
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
<S> <C>
PRINCIPAL INCREASE (Loan) $
------
PRINCIPAL PAYMENT (ONLY) $
------
INTEREST PAYMENT (ONLY) $
------
PRINCIPAL AND INTEREST (PAYMENT) $
------
</TABLE>
OTHER INSTRUCTIONS:
-------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Loan confirmed by this Loan Request;
provided that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
such date.
1
<PAGE> 31
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
Authorized Requester:
--------------------------------
Authorized Signature (Bank)
Phone #
----------------------------------------
2
<PAGE> 32
EXHIBIT C
BORROWING BASE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: NETRIGHT TECHNOLOGIES, INC. ("Borrower")
Commitment Amount: $
ACCOUNTS RECEIVABLE
<TABLE>
<S> <C> <C>
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. Concentration Limits $
---------------------
7. Foreign Accounts $
---------------------
8. Governmental Accounts $
---------------------
9. Contra Accounts $
---------------------
10. Promotion or Demo Accounts $
---------------------
11. Intercompany/Employee Accounts $
---------------------
12. Other (please explain on reverse) $
---------------------
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
---------------------
CALCULATION OF LOAN VALUE
14. Eligible Accounts (#3 minus #13) $
---------------------
15. LOAN VALUE OF ACCOUNTS (80% of #14) $
---------------------
BALANCES
16. Maximum Loan Amount $
---------------------
17. Total Funds Available (Lesser of #16 or #15) $
---------------------
18. Present balance owing on Line of Credit $
---------------------
19. RESERVE POSITION (#17 minus #18) $
---------------------
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
BORROWER: NETRIGHT TECHNOLOGIES, INC.
By:
--------------------------------
Authorized Signer
COMMENTS (FOR BANK USE ONLY):
Received By:
----------------------------
Date:
-----------------------------------
Reviewed By:
----------------------------
Compliance Status: Yes / No
------------
1
<PAGE> 33
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: NETRIGHT TECHNOLOGIES, INC. ("Borrower")
The undersigned authorized officer of the above Borrower hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending __________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
<TABLE>
<CAPTION>
REPORTING COVENANT COMPLIES
------------------ --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis
(unless otherwise stated):
<S> <C> <C> <C>
Minimum Quick Ratio 2:00:1.0 _____:1.0 Yes No
Minimum Liquidity Ratio 2.00:1.0 _____:1.0 Yes No
Profitability (Quarterly) $1.00 $1.00 Yes No
</TABLE>
Sincerely,
Date
- -------------------------------- --------
SIGNATURE
- --------------------------------
TITLE
BANK USE ONLY
Received By:
-----------------------------------
Date
-------------------------
Reviewed By:
-----------------------------------
Compliance Status: Yes / No
-------------------
1
<PAGE> 34
DISBURSEMENT REQUEST AND AUTHORIZATION
TO: SILICON VALLEY BANK
FROM: NETRIGHT TECHNOLOGIES, INC. ("Borrower")
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $_____________.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: _______________.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
<TABLE>
<CAPTION>
Revolving Line
--------------
<S> <C>
Amount paid to Borrower directly: $
--------
Undisbursed Funds $
--------
Principal $
--------
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
<TABLE>
<S> <C>
Prepaid Finance Charges Paid in Cash: $________
$_______ Loan Fee
$_______ Accounts Receivables Audit
Other Charges Paid in Cash: $________
$_______ UCC Search Fees
$_______ UCC Filing Fees
$_______ Patent Filing Fees
$_______ Trademark Filing Fees
$_______ Copyright Filing Fees
$________ Outside Counsel Fees and Expenses
[ESTIMATE, DO NOT LEAVE BLANK]
Total Charges Paid in Cash $________
</TABLE>
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from
Borrower's account numbered ______ the amount of any loan payment. If the funds
in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
1
<PAGE> 35
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF _____________, 19___.
BORROWER:
By:
-------------------------------------
Authorized Officer
2
<PAGE> 36
AGREEMENT TO PROVIDE INSURANCE
TO: SILICON VALLEY BANK
FROM: NETRIGHT TECHNOLOGIES, INC. ("Borrower")
INSURANCE REQUIREMENTS. Borrower understands that insurance coverage is
required in connection with the extending of a loan or the providing of other
financial accommodations to Borrower by Bank. These requirements are set forth
in the Loan Documents. The following minimum insurance coverages must be
provided on the following described collateral (the "Collateral"):
<TABLE>
<S> <C>
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that coverage will not be
cancelled or diminished without a minimum of 20 days prior written notice
to Bank.
</TABLE>
INSURANCE COMPANY. Borrower may obtain insurance from any insurance
company Borrower may choose that is reasonably acceptable to Bank. Borrower
understands that credit may not be denied solely because insurance was not
purchased through Bank.
FAILURE TO PROVIDE INSURANCE. Borrower agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of ______________, 19___, or earlier. Borrower acknowledges and
agrees that if Borrower fails to provide any required insurance or fails to
continue such insurance in force, Bank may do so at Borrower's expense as
provided in the Loan and Security Agreement. The cost of such insurance, at the
option of Bank, shall be payable on demand or shall be added to the indebtedness
as provided in the security document. BORROWER ACKNOWLEDGES THAT IF BANK SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, BORROWER'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION,
THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Borrower authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
1
<PAGE> 37
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT
TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 31,
1999.
BORROWER:
By: /s/ Mark Culhane, Chief Financial Officer
-------------------------------------------
Authorized Officer
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
2
<PAGE> 38
This JUNE 1999 LOAN MODIFICATION AGREEMENT, dated as of June 30, 1999
(this "Agreement"), is between iMANAGE, INC. (formerly known as NETRIGHT
TECHNOLOGIES, INC.), a Delaware corporation ("Borrower"), and SILICON VALLEY
BANK ("Bank").
Recitals
A. In addition to any other obligations which may be owing by
Borrower to Bank, Borrower is indebted to Bank pursuant to a Loan and Security
Agreement, dated as of March 31, 1999 (as may have been amended to the date
hereof, the "Loan Agreement"). The term "Obligations" and the other terms
defined in the Loan Agreement are used herein with the same meanings unless
otherwise defined herein.
B. Repayment of the Obligations is secured by the Collateral
described in the Loan Agreement and in an Intellectual Property Security
Agreement. The Loan Agreement, such Intellectual Property Security Agreement and
all other documents evidencing or securing the Obligations are called the
"Existing Loan Documents" herein.
The parties hereto hereby agree as follows:
1. Amendments.
(a) The following defined terms are hereby added to Section
1.1 of the Loan Agreement:
"Cash Management Advances" means all amounts advanced by Bank
for merchant services, direct deposit of payroll, business credit card and check
cashing services provided to Borrower as identified in the Cash Management
Services Agreement between Borrower and Bank.
"Cash Management Sublimit" means $5,000,000.00.
"Exchange Contract" has the meaning set forth in Section 2.1.4.
"June 1999 Equipment Availability Date" has the meaning set
forth in Section 2.1.5.
"June 1999 Equipment Commitment" means a credit extension of up
to $1,000,000.00.
"June 1999 Equipment Loan" has the meaning set forth in Section
2.1.5.
"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.3.
(b) The definition of "Loan" in Section 1.1 of the Loan
Agreement is amended and restated in its entirety to read as follows:
-1-
<PAGE> 39
"Loan" means a Revolving Loan, an Equipment Loan or a June 1999
Equipment Loan.
(c) Section 2.1.1.(a) of the Loan Agreement is amended and
restated in its entirety to read as follows:
2.1.1. (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Revolving loans to Borrower in an
aggregate outstanding amount not to exceed: (i) the Revolving
Commitment or the Borrowing Base, whichever is less, minus (ii)
the amount of all outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit), minus (iii) the Foreign
Exchange Reserve, and minus (iv) the amount of all outstanding
Cash Management Advances. Subject to the terms and conditions of
this Agreement, amounts borrowed pursuant to this Section 2.1
may be repaid and reborrowed at any time during the term of this
Agreement.
(d) The first sentence of Section 2.1.2.(b) of the Loan
Agreement is amended by deleting the reference to "Section 2.3(b)" contained
therein and by substituting therefor a reference to "Section 2.3(a)."
(e) The following Sections 2.1.3., 2.1.4. and 2.1.5. are
hereby added to the Loan Agreement:
2.1.3. Letters of Credit.
(a) Subject to the terms and conditions of
this Agreement, Bank agrees to issue or cause to be issued Letters of
Credit for the account of Borrower in an aggregate outstanding face
amount not to exceed (i) the Revolving Commitment or the Borrowing Base,
whichever is less, minus (ii) the amount of all outstanding Revolving
Loans, the amount of all outstanding Cash Management Advances and the
Foreign Exchange Reserve; provided that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit)
shall not in any case exceed $5,000,000.00. Each Letter of Credit shall
have an expiry date no later than 180 days after the Revolving Maturity
Date provided that Borrower's Letter of Credit reimbursement obligation
shall be secured by cash on terms acceptable to Bank at any time after
the Revolving Maturity Date if the term of this Agreement is not
extended by Bank. 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 form of standard Application and Letter
of Credit Agreement.
(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 and such Letters
of Credit, under all circumstances whatsoever. Borrower shall indemnify,
defend, protect, and hold Bank harmless from any loss, cost, expense or
liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any Letters of Credit.
-2-
<PAGE> 40
(c) Borrower may request that Bank issue a
Letter of Credit payable in a currency other than United States Dollars.
If a demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as a Revolving Loan to Borrower of the
equivalent of the amount thereof (plus cable charges) in United States
currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer to the
country of which it is the currency.
(d) Upon the issuance of any letter of
credit payable in a currency other than United States Dollars, Bank
shall create a reserve under the Revolving Commitment for letters of
credit against fluctuations in currency exchange rates, in an amount
equal to ten percent (10%) of the face amount of such letter of credit.
The amount of such reserve may be amended by Bank from time to time to
account for fluctuations in the exchange rate. The availability of funds
under the Revolving Commitment shall be reduced by the amount of such
reserve for so long as such letter of credit remains outstanding.
2.1.4. Foreign Exchange Contract; Foreign Exchange
Settlements.
(a) Subject to the terms of this Agreement,
Borrower may enter into foreign exchange contracts (the "Exchange
Contracts") not to exceed an aggregate amount of $5,000,000.00 (the
"Contract Limit"), pursuant to which Bank shall sell to or purchase from
Borrower foreign currency on a spot or future basis. Borrower shall not
request any Exchange Contracts at any time it is out of compliance with
any of the provisions of this Agreement. All Exchange Contracts must
provide for delivery of settlement on or before the Revolving Maturity
Date. The amount available under the Revolving Commitment at any time
shall be reduced by the following amounts (the "Foreign Exchange
Reserve") on any given day (the "Determination Date"): (i) on all
outstanding Exchange Contracts on which delivery is to be effected or
settlement allowed more than two business days after the Determination
Date, 10% of the gross amount of the Exchange Contracts; plus (ii) on
all outstanding Exchange Contracts on which delivery is to be effected
or settlement allowed within two business days after the Determination
Date, 100% of the gross amount of the Exchange Contracts.
(b) Bank may, in its discretion, terminate
the Exchange Contracts at any time (a) that an Event of Default occurs
or (b) that there is no sufficient availability under the Revolving
Commitment and Borrower does not have available funds in its bank
account to satisfy the Foreign Exchange Reserve. If Bank terminates the
Exchange Contracts, and without limitation of any applicable
indemnities, Borrower agrees to reimburse Bank for any and all fees,
costs and expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total
gross amount of all Exchange Contracts on which delivery is to be
effected and settlement allowed in any two business day period to be
more than $5,000,000.00 (the "Settlement Limit") nor shall Borrower
permit the total gross amount of all Exchange Contracts to which
Borrower is a party, outstanding at any
-3-
<PAGE> 41
one time, to exceed the Contract Limit. Notwithstanding the above,
however, the amount which may be settled in any two (2) business day
period may be increased above the Settlement Limit up to, but in no
event to exceed, the amount of the Contract Limit under either of the
following circumstances:
(i) if there is sufficient availability
under the Revolving Commitment in the amount of the Foreign Exchange
Reserve as of each Determination Date, provided that Bank in advance
shall reserve the full amount of the Foreign Exchange Reserve against
the Revolving Commitment; or
(ii) if there is insufficient availability
under the Revolving Commitment, as to settlements within any two (2)
business day period, provided that Bank, in its sole discretion, may:
(A) verify good funds overseas prior to crediting Borrower's deposit
account with Bank (in the case of Borrower's sale of foreign currency);
or (B) debit Borrower's deposit account with Bank prior to delivering
foreign currency overseas (in the case of Borrower's purchase of foreign
currency).
(d) In the case of Borrower's purchase of
foreign currency, Borrower in advance shall instruct Bank upon
settlement either to treat the settlement amount as an advance under the
Revolving Commitment, or to debit Borrower's account for the amount
settled.
(e) Borrower shall execute all standard form
applications and agreements of Bank in connection with the Exchange
Contracts and, without limiting any of the terms of such applications
and agreements, Borrower will pay all standard fees and charges of Bank
in connection with the Exchange Contracts.
(f) Without limiting any of the other terms
of this Agreement or any such standard form applications and agreement
of Bank, Borrower agrees to indemnify Bank and hold it harmless, from
and against any and all claims, debts, liabilities, demands,
obligations, actions, costs and expenses (including, without limitation,
attorneys' fees of counsel of Bank's choice), of every nature and
description which it may sustain or incur, based upon, arising out of,
or in any way relating to any of the Exchange Contracts or any
transactions relating thereto or contemplated thereby.
2.1.5. June 1999 Equipment Loans.
(a) Subject to an upon the terms and conditions of
this Agreement, at any time from the date hereof through the date which
is twelve months from the date of that certain June 1999 Loan
Modification Agreement, between Bank and Borrower (the "June 1999
Equipment Availability Date"), but no more frequently than once during
each calendar month, Bank agrees to make advances (each and "Equipment
Loan") to Borrower in an aggregate amount not to exceed the June 1999
Equipment Commitment. Borrower shall deliver to Bank, at the time of
each June 1999 Equipment Loan request, an invoice for the equipment to
be financed
-4-
<PAGE> 42
by such June 1999 Equipment Loan. The June 1999 Equipment Loan shall be
used only to purchase or refinance Equipment purchased on or after 120
days prior to the date hereof and shall not exceed 100% of the invoice
amount of such equipment approved from time to time by Bank, including
sales taxes, freight, and installation expenses.
(b) Interest Rate. Except as set forth in Section
2.3(a), the outstanding principal amount of the June 1999 Equipment
Loans shall bear interest, on the average daily balance thereof, at a
per annum rate equal to 0.50 percentage points above the Prime Rate.
Accrued interest on each June 1999 Equipment Loan shall be payable
monthly on each Payment Date and on the date the final installment of
principal on the June 1999 Equipment Loans is due.
(c) Any June 1999 Equipment Loans that are
outstanding on the June 1999 Equipment Availability End Date will be
payable in 36 equal monthly installments of principal, on each Payment
Date, beginning on the Payment Date of following the June 1999 Equipment
Availability End Date and continuing until June 30, 2003, when all June
1999 Equipment Loans shall be immediately due and payable. June 1999
Equipment Loans, once repaid, may not be reborrowed.
(d) When Borrower desires to obtain a June 1999
Equipment Loan, Borrower shall notify Bank (which notice shall be
irrevocable) by facsimile transmission to be received no later than 3:00
p.m. Pacific time one Business Day before the day on which the June 1999
Equipment Loan is to be made. Such notice shall be substantially in the
form of Exhibit B. The notice shall be signed by a Responsible Officer
or its designee and include a copy of the invoice for the Equipment to
be financed.
(e) Section 2.2 of the Loan Agreement is amended and
restated in its entirety to read as follows:
2.2 Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to Section 2.1.1, 2.1.3
and 2.1.4 of this Agreement, plus the amount of all outstanding Cash Management
Advances, is greater than the lesser of (i) the Revolving Commitment or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2. Corresponding Amendments. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
3. No Defenses. Borrower agrees that it has no defenses against the
obligations to pay any amounts under the Obligations.
4. Continuing Validity. Borrower understands and agrees that in
modifying the existing Obligations, Bank is relying upon Borrower's
representations, warranties, and agreements, as set forth in the Existing Loan
Documents. Except as expressly modified pursuant to this Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Obligations pursuant to this
Agreement in no way shall obligate Bank to make any future modifications to the
Obligations.
-5-
<PAGE> 43
Nothing in this Agreement shall constitute a satisfaction of the Obligations. It
is the intention of Bank and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released by
Bank in writing. The terms of this paragraph apply not only to this Agreement,
but also to all subsequent loan modification agreements.
5. Condition. The effectiveness of this Agreement is conditioned
upon (a) the execution and delivery hereof by both Bank and Borrower; and (b)
receipt by Bank from Borrower of a Facility Fee in the amount of $2,500.00 on
account of the June 1999 Equipment Commitment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER: BANK:
iMANAGE, INC. SILICON VALLEY BANK
By /s/ Mark Culhane By /s/ Chris Stedman
-------------------------------- --------------------------------------
Title: Chief Financial Officer Title: AVP
---------------------------- ----------------------------------
-6-
<PAGE> 44
This AUGUST 1999 LOAN MODIFICATION AGREEMENT, dated as of August 31,
1999 (this "Agreement"), is between iMANAGE, INC. (formerly known as NETRIGHT
TECHNOLOGIES, INC.), a Delaware corporation ("Borrower"), and SILICON VALLEY
BANK ("Bank").
Recitals
A. In addition to any other obligations which may be owing by Borrower
to Bank, Borrower is indebted to Bank pursuant to a Loan and Security Agreement,
dated as of March 31, 1999 (as may have been amended to the date hereof, the
"Loan Agreement"). The term "Obligations" and the other terms defined in the
Loan Agreement are used herein with the same meanings unless otherwise defined
herein.
B. Repayment of the Obligations is secured by the Collateral described
in the Loan Agreement and in an Intellectual Property Security Agreement. The
Loan Agreement, such Intellectual Property Security Agreement and all other
documents evidencing or securing the Obligations are called the "Existing Loan
Documents" herein.
The parties hereto hereby agree as follows:
1. Amendments.
(a) Section 6.10 of the Loan Agreement is amended and restated in
its entirety to read as follows:
6.10 Profitability. Borrower shall be profitable
(profitability to be determined in accordance with GAAP,
to be net of charges of software development costs and to
exclude any and all non-cash expenses associated directly
with the amortization of stock compensation to employees
of Borrower) for each fiscal quarter, except Borrower may
suffer a loss not to exceed $150,000.00 for one fiscal
quarter in any fiscal year, commencing with the fiscal
quarter ending March 31, 1999.
2. Waiver. Bank waives, on a one-time basis, any and all violations by
Borrower prior to the execution and delivery of this Amendment of the
profitability covenant contained in Section 6.10 of the Loan Agreement.
3. Corresponding Amendments. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
4. No Defenses. Borrower agrees that it has no defenses against the
obligations to pay any amounts under the Obligations.
5. Continuing Validity. Borrower understands and agrees that in
modifying the existing Obligations, Bank is relying upon Borrower's
representations, warranties, and agreements, as set forth in the Existing Loan
Documents. Except as expressly modified pursuant to this Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force
-1-
<PAGE> 45
and effect. Bank's agreement to modifications to the existing Obligations
pursuant to this Agreement in no way shall obligate Bank to make any future
modifications to the Obligations. Nothing in this Agreement shall constitute a
satisfaction of the Obligations. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. The terms of this
paragraph apply not only to this Agreement, but also to all subsequent loan
modification agreements.
6. Condition. The effectiveness of this Agreement is conditioned upon
(a) the execution and delivery hereof by both Bank and Borrower; and (b) receipt
by Bank from Borrower of an Amendment Fee in the amount of $500.00.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER: BANK:
iMANAGE, INC. SILICON VALLEY BANK
By /s/ Mark Culhane By /s/ Chris Stedman
-------------------------------- --------------------------------
Title: CFO Title: AVP
---------------------------- -----------------------------
-2-
<PAGE> 46
This MARCH 2000 LOAN MODIFICATION AGREEMENT, dated as of March __, 2000
(this "Agreement"), is between iMANAGE, INC. (formerly known as NETRIGHT
TECHNOLOGIES, INC.), a Delaware corporation ("Borrower"), and SILICON VALLEY
BANK ("Bank").
Recitals
A. In addition to any other obligations which may be owing by Borrower
to Bank, Borrower is indebted to Bank pursuant to a Loan and Security Agreement,
dated as of March 31, 1999 (as may have been amended to the date hereof, the
"Loan Agreement"). The term "Obligations" and the other terms defined in the
Loan Agreement are used herein with the same meanings unless otherwise defined
herein.
B. Repayment of the Obligations is secured by the Collateral described
in the Loan Agreement and in an Intellectual Property Security Agreement. The
Loan Agreement, such Intellectual Property Security Agreement and all other
documents evidencing or securing the Obligations are called the "Existing Loan
Documents" herein.
The parties hereto hereby agree as follows:
1. Amendments.
(a) To amend and restate certain definitions in Section 1.1
thereof, as follows:
"Cash Management Sublimit" means $3,000,000.00.
"Loan" means a Revolving Loan, an Equipment Loan, a June
1999 Equipment Loan, or a March 2000 Equipment Loan.
"Revolving Commitment" means a credit extension of up to
$3,000,000.00.
"Revolving Maturity Date" means March 30, 2001.
(b) The following defined terms are hereby added to
Section 1.1 of the Loan Agreement:
"March 2000 Equipment Availability End Date" has the
meaning set forth in Section 2.1.6.
"March 2000 Equipment Commitment" means a credit extension
of up to $2,000,000.00.
"March 2000 Equipment Loan" has the meaning set forth in
Section 2.1.6.
"March 2000 Loan Modification Agreement" means the March
2000 Loan Modification Agreement between Bank and
Borrower, dated March __, 2000.
-1-
<PAGE> 47
(c) Section 2.1.3.(a) is hereby amended and restated in its
entirety to read as follows:
2.1.3. (a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued
Letters of Credit for the account of Borrower in an
aggregate outstanding face amount not to exceed (i) the
Revolving Commitment or the Borrowing Base, whichever is
less, minus (ii) the amount of all outstanding Revolving
Loans, the amount of all outstanding Cash Management
Advances and the Foreign Exchange Reserve; provided that
the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) shall
not in any case exceed $3,000,000.00. Each Letter of
Credit shall have an expiry date no later than 180 days
after the Revolving Maturity Date provided that Borrower's
Letter of Credit reimbursement obligation shall be secured
by cash on terms acceptable to Bank at any time after the
Revolving Maturity Date if the term of this Agreement is
not extended by Bank. 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 form of standard Application and
Letter of Credit Agreement.
(d) Section 2.1.4.(a) is hereby amended and restated in its
entirety to read as follows:
2.1.4. (a) Subject to the terms of this Agreement,
Borrower may enter into foreign exchange contracts (the
"Exchange Contracts") not to exceed an aggregate amount of
$3,000,000.00 (the "Contract Limit"), pursuant to which
Bank shall sell to or purchase from Borrower foreign
currency on a spot or future basis. Borrower shall not
request any Exchange Contracts at any time it is out of
compliance with any of the provisions of this Agreement.
All Exchange Contracts must provide for delivery of
settlement on or before the Revolving Maturity Date. The
amount available under the Revolving Commitment at any
time shall be reduced by the following amounts (the
"Foreign Exchange Reserve") on any given day (the
"Determination Date"): (i) on all outstanding Exchange
Contracts on which delivery is to be effected or
settlement allowed more than two business days after the
Determination Date, 10% of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding Exchange
Contracts on which delivery is to be effected or
settlement allowed within two business days after the
Determination Date, 100% of the gross amount of the
Exchange Contracts.
(e) Section 2.1.4(c) is hereby amended and restated in its
entirety to read as follows:
2.1.4. (c) Borrower shall not permit the total gross
amount of all Exchange Contracts on which delivery is to
be effected and settlement allowed in any two business day
period to be more than
-2-
<PAGE> 48
$3,000,000.00 (the "Settlement Limit") nor shall Borrower
permit the total gross amount of all Exchange Contracts to
which Borrower is a party, outstanding at any one time, to
exceed the Contract Limit. Notwithstanding the above,
however, the amount which may be settled in any two (2)
business day period may be increased above the Settlement
Limit up to, but in no event to exceed, the amount of the
Contract Limit under either of the following
circumstances:
(i) if there is sufficient availability under the
Revolving Commitment in the amount of the Foreign Exchange
Reserve as of each Determination Date, provided that Bank
in advance shall reserve the full amount of the Foreign
Exchange Reserve against the Revolving Commitment; or
(ii) if there is insufficient availability under
the Revolving Commitment, as to settlements within any two
(2) business day period, provided that Bank, in its sole
discretion, may: (A) verify good funds overseas prior to
crediting Borrower's deposit account with Bank (in the
case of Borrower's sale of foreign currency); or (B) debit
Borrower's deposit account with Bank prior to delivering
foreign currency overseas (in the case of Borrower's
purchase of foreign currency).
(f) Section 2.1.5 (c) is hereby amended and restated in
its entirety to read as follows:
2.1.5. (c) Any June 1999 Equipment Loans that are
outstanding on the June 1999 Equipment Availability Date
will be payable in 36 equal monthly installments of
principal, on each Payment Date, beginning on the Payment
Date following the June 1999 Equipment Availability Date
and continuing until June 30, 2003, when all June 1999
Equipment Loans shall be immediately due and payable. June
1999 Equipment Loans, once repaid, may not be reborrowed.
(g) Section 2.1.6 is hereby added to the Loan Agreement:
2.1.6. March 2000 Equipment Loans.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through the
date which is twelve months from the date of that certain
March 2000 Loan Modification Agreement, between Bank and
Borrower (the "March 2000 Equipment Availability End
Date"), but no more frequently than once during each
calendar month, Bank agrees to make advances (each, a
"March 2000 Equipment Loan") to Borrower in an aggregate
amount not to exceed the March 2000 Equipment Commitment.
Borrower shall deliver to Bank, at the time of each March
2000 Equipment Loan request, an invoice for the equipment
to be financed by such March 2000 Equipment Loan. Each
March 2000 Equipment Loan shall be used only to
-3-
<PAGE> 49
purchase or refinance Equipment purchased on or after 90
days prior to the date hereof and shall not exceed 100% of
the invoice amount of such equipment approved from time to
time by Bank, including sales taxes, freight, and
installation expenses.
(b) Interest Rate. Except as set forth in Section 2.3(a),
the outstanding principal amount of the March 2000
Equipment Loans shall bear interest, on the average daily
balance thereof, at a per annum rate equal to 0.50
percentage points above the Prime Rate. Accrued interest
on each March 2000 Equipment Loan shall be payable monthly
on each Payment Date and on the date the final installment
of principal on the March 2000 Equipment Loans is due.
(c) Any March 2000 Equipment Loans that are outstanding on
the March 2000 Equipment Availability End Date will be
payable in 36 equal monthly installments of principal, on
each Payment Date, beginning on the Payment Date following
the March 2000 Equipment Availability End Date and
continuing until March 31, 2004, when all March 2000
Equipment Loans shall be immediately due and payable.
March 2000 Equipment Loans, once repaid, may not be
reborrowed.
(d) When Borrower desires to obtain a March 2000 Equipment
Loan, Borrower shall notify Bank (which notice shall be
irrevocable) by facsimile transmission to be received no
later than 3:00 p.m. Pacific time one Business Day before
the day on which the March 2000 Equipment Loan is to be
made. Such notice shall be substantially in the form of
Exhibit B. The notice shall be signed by a Responsible
Officer or its designee and include a copy of the invoice
for the Equipment to be financed.
(g) Section 6.10 of the Loan Agreement is amended and restated
in its entirety to read as follows:
6.10 Cash Losses. Borrower shall not have an Adjusted Net
Loss (as hereafter defined) of greater than $1,000,000 in
any fiscal quarter. As used herein, Adjusted Net Loss
means for any period, the Borrower's consolidated net loss
(determined in accordance with GAAP) excluding all
non-cash items, including the amortization of goodwill,
depreciation, and the amortization of stock-based
compensation, to the extent such items were deducted in
calculating such net loss.
2. Corresponding Amendments. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
3. No Defenses. Borrower agrees that it has no defenses against the
obligations to pay any amounts under the Obligations.
4. Continuing Validity. Borrower understands and agrees that in
modifying the existing Obligations, Bank is relying upon Borrower's
representations, warranties, and
-4-
<PAGE> 50
agreements, as set forth in the Existing Loan Documents. Except as expressly
modified pursuant to this Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Obligations pursuant to this Agreement in no way shall obligate
Bank to make any future modifications to the Obligations. Nothing in this
Agreement shall constitute a satisfaction of the Obligations. It is the
intention of Bank and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released by
Bank in writing. The terms of this paragraph apply not only to this Agreement,
but also to all subsequent loan modification agreements.
5. Condition. The effectiveness of this Agreement is conditioned
upon (a) the execution and delivery hereof by both Bank and Borrower; and (b)
receipt by Bank from Borrower of a Facility Fee in the amount of $30,000 on
account of the March 2000 Equipment Commitment and the renewal of the Revolving
Commitment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER: BANK:
iMANAGE, INC., a Delaware corporation SILICON VALLEY BANK
By __________________________________ By _________________________________
Title: ______________________________ Title: _____________________________
-5-
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 33,889
<SECURITIES> 6,605
<RECEIVABLES> 7,667
<ALLOWANCES> (294)
<INVENTORY> 0
<CURRENT-ASSETS> 49,284
<PP&E> 3,520
<DEPRECIATION> 1,072
<TOTAL-ASSETS> 64,268
<CURRENT-LIABILITIES> 13,427
<BONDS> 0
0
0
<COMMON> (22)
<OTHER-SE> (49,459)
<TOTAL-LIABILITY-AND-EQUITY> 64,268
<SALES> 7,182
<TOTAL-REVENUES> 7,182
<CGS> 1,328
<TOTAL-COSTS> 6,615
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<INCOME-TAX> (23)
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