<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number: 0-24858
WAVEPHORE, INC.
(Exact name of registrant as specified in its charter)
INDIANA 86-0491428
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3311 NORTH 44TH STREET, PHOENIX, AZ 85018
(602) 952-5500
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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 the filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares outstanding of the issuer's common stock, as of November
10, 1997:
COMMON SHARES, NO PAR VALUE: 17,349,511 SHARES
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WAVEPHORE, INC.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996.....................3
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 1997 and 1996......4
Condensed Consolidated Statements of Cash Flows -
Three and nine months ended September 30, 1997 and 1996......5
Notes to Condensed Consolidated Financial Statements.........6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................8
PART II OTHER INFORMATION
Item 2. Changes in Securities.......................................10
Item 6. Exhibits and Reports on Form 8-K ...........................11
SIGNATURES....................................................................12
EXHIBIT INDEX.................................................................13
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WavePhore, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $21,010,124 $11,793,205
Accounts receivable 7,275,012 3,880,715
Inventories 3,672,626 3,342,975
Other receivables 98,848 90,374
Notes receivable from officers, including interest 645,975 604,605
Prepaid expenses and other 690,899 1,133,946
----------- -----------
Total Current Assets 33,393,484 20,845,820
Notes and other receivables -- 129,716
Property and equipment, net 4,218,628 2,281,367
Intangible assets of businesses acquired, net 18,424,312 16,570,338
Deposits and other assets 1,417,684 1,734,929
----------- -----------
$57,454,108 $41,562,170
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,720,057 $ 2,126,129
Accrued expenses 2,946,200 675,322
Deferred revenue 1,410,327 --
Payable related to business acquisition 6,000,000 --
Bank loans 1,107,048 1,720,731
Current portion of long-term debt 529,478 537,487
Other -- 39,370
----------- -----------
Total Current Liabilities 13,713,110 5,099,039
Long-term debt, less current portion 37,489 97,959
Other long-term liabilities 512,007 511,475
Stockholders' equity 43,191,502 35,853,697
----------- -----------
$57,454,108 $41,562,170
=========== ===========
</TABLE>
See accompanying notes.
3
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WavePhore, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Networks services and equipment $ 5,573,160 $ 4,785,975 $ 13,726,789 $ 12,766,625
Newscast services 955,454 408,093 2,010,497 1,075,210
------------ ------------ ------------ ------------
Total Revenues 6,528,614 5,194,068 15,737,286 13,841,835
Cost of revenues 3,469,377 3,140,320 8,606,786 8,441,096
------------ ------------ ------------ ------------
Gross margin 3,059,237 2,053,748 7,130,500 5,400,739
Operating expenses:
Research and development 2,024,003 989,469 5,551,816 2,910,844
Sales and marketing 2,362,500 1,384,432 7,002,411 4,300,805
General and administrative 1,211,329 1,232,454 3,527,061 4,014,987
Amortization 557,223 481,906 1,576,568 1,449,294
Charge for purchased research and development -- -- 6,000,000 --
------------ ------------ ------------ ------------
6,155,055 4,088,261 23,657,856 12,675,930
------------ ------------ ------------ ------------
Loss from operations (3,095,818) (2,034,513) (16,527,356) (7,275,191)
Other (income) expense:
Interest expense 47,708 33,406 140,479 133,097
Interest income (226,405) (164,710) (489,553) (535,563)
Other 3,920 (3,576) 16,123 (6,003)
------------ ------------ ------------ ------------
(174,777) (134,880) (332,951) (408,469)
------------ ------------ ------------ ------------
Net loss $ (2,921,041) $ (1,899,633) $(16,194,405) $ (6,866,722)
============ ============ ============ ============
Less: Preferred stock dividends (537,427) (345,987) (1,108,652) (1,398,420)
------------ ------------ ------------ ------------
Net loss after preferred stock dividends $ (3,458,468) $ (2,245,620) $(17,303,057) $ (8,265,142)
============ ============ ============ ============
Net loss per common share $ (0.18) $ (0.13) $ (0.99) $ (0.54)
============ ============ ============ ============
Net loss per common share after
preferred stock dividends $ (0.21) $ (0.16) $ (1.05) $ (0.65)
============ ============ ============ ============
Number of shares used in per share
calculation 16,648,873 14,280,985 16,420,288 12,676,758
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
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WavePhore, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
--------------------------------
September 30, September 30,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(16,194,405) $ (6,866,722)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 2,212,472 2,212,825
Gain on disposal of assets (55,763) (78,809)
Provision for doubtful accounts 112,037 63,000
Charge for purchased research and development 6,000,000 --
Changes in operating assets and liabilities (1,273,923) (1,765,043)
------------ ------------
Net cash used in operating activities (9,199,582) (6,434,749)
INVESTING ACTIVITIES:
Purchase of property and equipment (1,398,460) (935,265)
Proceeds from sale of property & equipment 81,718 101,401
Purchase of business net of cash acquired (3,075,434) --
Purchase of treasury stock (362,954) (2,181,884)
Loans to officers, including interest (41,370) (561,774)
------------ ------------
Net cash used in investing activities (4,796,500) (3,577,522)
FINANCING ACTIVITIES:
Issuance of preferred shares, net 23,763,091 9,272,389
Payment of preferred stock dividend (276,288) (552,164)
Issuance of common stock, net 400,001 4,583,696
Payments on notes payable (2,027,838) (1,532,749)
Credit line; net 1,345,678 1,978,061
Other
8,357 (3,684)
------------ ------------
Net cash provided by financing activities 23,213,001 13,745,549
------------ ------------
Net increase in cash and cash equivalents 9,216,919 3,733,278
Cash and cash equivalents at beginning of period 11,793,205 10,945,178
------------ ------------
Cash and cash equivalents at end of period $ 21,010,124 $ 14,678,456
============ ============
Supplemental cash flow information
- Payable related to business acquisition $ 6,000,000
============
- Issuance of common stock in connection
with dividend payment on preferred stock $ 585,681 $ 833,095
============ ============
</TABLE>
See accompanying notes.
5
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WavePhore, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report on Form 10K for
the year ended December 31, 1996. The results of operations for the three and
nine month periods ended September 30, 1997 are not necessarily indicative of
the results to be expected for the full year.
(2) LOSS PER SHARE
Loss per share is based on the weighted average number of common shares
outstanding during each period. Common stock equivalents, which were
anti-dilutive, were not included in the computation of net loss per share.
(3) RECLASSIFICATIONS
Certain amounts presented for the three and nine months ended September
30, 1996 have been reclassified to conform to September 30, 1997 presentation.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Finished goods $ 872,713 $ 687,914
Work-in-process 1,143,083 1,298,893
Raw materials 1,656,830 1,356,168
---------- ----------
$3,672,626 $3,342,975
========== ==========
</TABLE>
(5) RECENTLY ENACTED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share for these
quarters is not expected to be material.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, which is required to be adopted in the first quarter of 1998. SFAS No.
130 establishes standards for the reporting and display of comprehensive income
and its components. Comprehensive income includes certain non-owner changes in
equity which are currently excluded from net income. Because the Company
historically has not experienced transactions which would be included in
comprehensive income, adoption of SFAS
6
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WavePhore, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
No. 130 is not expected to have a material effect on the consolidated financial
position, results of operations or cash flows of the Company.
(6) ACQUIRED BUSINESS
On May 29, 1997, WavePhore, Inc., an Indiana Corporation (the
"Company"), through its wholly-owned subsidiary, WavePhore Newscast, Inc., a
Delaware Corporation ("WavePhore Newscast"), purchased substantially all of the
assets and assumed certain of the liabilities of Paracel Online Systems, Inc., a
California Corporation ("Paracel Online") of Dallas, Texas, in consideration of
cash and future consideration based on achieving certain future financial
performance, pursuant to an Agreement for the Purchase and Sale of Assets among
the Company, WavePhore Newscast, Paracel Online and Paracel, Inc., dated May 29,
1997.
The pro forma unaudited results of operations for the nine months ended
September 30, 1997 and September 30, 1996, assuming consummation of the purchase
as of January 1, 1996 are as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996
-------------- --------------
<S> <C> <C>
Net sales $ 16,305,000 $ 14,370,000
Net loss (17,350,000) (9,106,000)
Net loss after preferred stock dividends (18,458,000) (10,505,000)
Net loss per common share (1.06) (0.72)
Net loss per common share after preferred
stock dividends (1.12) (0.83)
</TABLE>
(7) EQUITY OFFERING
On July 24, 1997, the Company completed a private placement of
WavePhore Series C Convertible Preferred Shares priced at $1,000 per share
resulting in gross proceeds of $24 million. The preferred shares carry a
dividend rate of 6% per annum, which may be paid in cash or common stock and are
non-voting.
7
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
WavePhore, Inc. including its wholly-owned subsidiaries, WavePhore
Canada, Inc., WavePhore Newscast, Inc., WavePhore Networks, Inc., WavePhore
WaveTop, Inc. and WavePhore Japan K.K. (collectively the "Company"), is a
developer and provider of proprietary products and services for the low-cost,
high speed distribution of digital data via the existing worldwide television,
radio, satellite and internet infrastructures.
On February 10, 1997, the Company announced the creation of its
broadcast PC consumer service, Wavetop(TM) , a nationwide broadcast medium for
the home PC. The new broadcast service will deliver news, sports and
entertainment programming via existing TV broadcasting signals without the
bottleneck of the Internet or tying up of phone lines.
In preparation for providing this consumer service, the Company signed
an agreement with PBS National Datacast, Inc. ("PBS") during 1996. Utilizing the
Company's technology, information will be sent to the consumer by embedding it
in the existing TV broadcast signals of PBS's 264 member stations.
On May 29, 1997, the Company, through its wholly-owned subsidiary,
WavePhore Newscast, Inc., purchased substantially all of the assets and assumed
certain of the liabilities of Paracel Online Systems, Inc., ("Paracel Online")
of Dallas, Texas, in consideration of cash and future consideration based on
achieving certain future financial performance, pursuant to an Agreement for the
Purchase and Sale of Assets among the Company, WavePhore Newscast, Paracel
Online and Paracel, Inc.
During 1996, the Company licensed certain software to Compaq Computer
Corporation ("Compaq"). The software, when installed in Compaq PC's, will allow
the home PC user to receive the Company's broadcast services.
RESULTS OF OPERATION - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues. Revenues are derived from networks services and related
equipment sales and Newscast(TM) services. Revenues for the three and nine
months ended September 30, 1997 were $6,529,000 and $15,737,000, compared to
$5,194,000 and $13,842,000, respectively for the comparable periods in the prior
year. The increase in revenues is the result of increased subscribers to the
Newscast service, increases in data transmission by network services customers
and increased sales of communications equipment.
Cost of Revenues. Cost of revenues consists primarily of costs
associated with transmitting news services to customer sites and cost of
hardware and software sold to customers. Cost of revenues for the three and nine
months ended September 30, 1997 were $3,469,000 and $8,607,000, compared to
$3,140,000 and $8,441,000, respectively, for the comparable period in the prior
year. Gross margin percentages are 47% and 45% for the three and nine months
ended September 30, 1997, and 40% and 39% in 1996, respectively. The improvement
in gross margin is the result of revenue mix changes to higher margin networks
and Newscast services.
Research and Development. Research and development expenses were
$2,024,000 and $5,552,000 for the three and nine months ended September 30,
1997, respectively, compared to $989,000 and $2,911,000, respectively for the
comparable periods in the prior year. The increase in expenses is attributable
to spending by the Company to advance existing technologies and products, and
for the continued development of the consumer based WaveTop(TM) service. The
research and development expenses consist primarily of design, testing and
support of the Company's existing and developing hardware, software and
services. The Company anticipates continuing to make significant expenditures in
8
<PAGE> 9
product development as it develops new and enhanced services and provides
services to a growing customer base.
Sales and Marketing. Sales and marketing expenses for the three and
nine month periods ended September 30, 1997 were $2,363,000 and $7,002,000,
respectively, compared to $1,384,000 and $4,301,000, respectively, for the
comparable periods of the prior year. The increase relates primarily to
additional sales personnel, increased travel, and advertising and promotional
costs.
General and administrative. General and administrative expenses for the
three and nine months ended September 30, 1997 were $1,211,000 and $3,527,000,
respectively, compared to $1,232,000 and $4,015,000, respectively, for the
comparable period of the prior year. The decrease relates primarily to cost
control measures taken by the Company.
Charge for purchased research and development. The charge for purchased
research and development of $6,000,000 was recorded in connection with the
Paracel Online acquisition. The amount represents research and development of
new products and product upgrades that were in process by Paracel Online at the
acquisition date.
Interest Expense. Interest expense was $48,000 and $140,000 for the
three and nine months ended September 30, 1997, and $33,000 and $133,000 for the
same periods in 1996. The fluctuation corresponds to the amount of debt
outstanding during the respective periods.
Interest Income. Interest income was $226,000 and $490,000 during the
three and nine months ended September 30, 1997, compared to $165,000 and
$536,000 for the same period of the prior year. The fluctuation relates to
increases in cash balances available for investment.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997 and 1996, the Company
used cash in its operations of $9,200,000 and $6,435,000, respectively. Cash
used in operations is less than the net losses primarily because of non cash
charges of depreciation, amortization and purchased research and development.
Cash flows used in investing activities was $4,797,000 for the nine months ended
September 30, 1997, compared to cash used in investing activities of $3,578,000
for the same period in the prior year. The September 30, 1997 total cash used in
the purchase business combination was $3,075,000. The Company made purchases of
$363,000 and $1,398,000 of treasury stock and property and equipment,
respectively, during the first nine months of 1997. For the nine months ended
September 30, 1997, the Company generated cash from financing activities of
$23,213,000, compared to $13,745,000 generated for the nine months ended
September 30, 1996. The generation of cash in 1997 and 1996 was primarily from
the issuance of preferred and common stock.
The Company estimates that its present financial resources will be
sufficient to fund operating activities including the company's accelerated
internal growth beyond 1997. The Company will continue to evaluate business
acquisitions and the development of strategic partnerships to help accelerate
its growth. The pace at which these acquisitions and strategic partnerships
occur will have an impact on the capital resources of the Company to the extent
they are funded with cash, or upon the dilution of existing shareholder
interests to the extent they are entered into for equity.
Certain of the above statements may constitute forward looking
statements which may involve risks and uncertainties. Actual results could
differ materially from such forward looking statements as a result of a variety
of factors, including, but not limited to, technology changes, competitive
developments, industry and market acceptance of new products and services, and
risk factors listed from time to time in the Company's SEC filings.
9
<PAGE> 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(c) On July 24, 1997, the Company sold 24,000 shares of its Series C
Convertible Preferred Stock(the "Series C Shares") and Warrants ( the
"Warrants") to purchase 545,455 Common Shares in a private placement to six
institutional investors for an aggregate purchase price of $24,000,000. The
Series C Shares and Warrants were sold with the assistance of Southcoast Capital
Corporation ("Southcoast"), as placement agent, for which services Southcoast
received a fee of $1,080,000, plus reimbursement of expenses in the amount of
$43,000. The Series C Shares and Warrants were sold pursuant to the non-public
offering exemption from registration in Section 4(2) of the Securities Act of
1933, as amended (the "Act"), and Regulation D thereunder, and bear a restricted
securities legend.
Commencing on October 24, 1997, each holder may convert its Series C
Shares into Common Shares, subject to certain limitations and procedures
described in the Articles of Amendment to the Company's Articles of
Incorporation by which such Series C Shares were designated. The number of
Common Shares that may be acquired upon conversion will equal the Stated Value
of the Series C Shares being converted divided by the applicable Conversion
Price. For the first six months following the date of issuance (the "Fixed
Conversion Price Period"), the conversion price will be $8.80, which is equal to
115% of the average of the closing sale prices of the Company's Common Shares as
reported on the Nasdaq National Market on the five trading days immediately
prior to but not including the date of issuance (the "Fixed Conversion Price").
The Fixed Conversion Price Period, which currently will expire on January 23,
1998, may be extended up to six months if the company satisfies certain
conditions described in the Articles of Amendment. Following the Fixed
Conversion Price Period, the conversion price will be the lesser of: (i) the
Fixed Conversion Price, or (ii) a "floating" conversion price equal to the
average of the third to seventh lowest closing sale prices for the Company's
Common Shares during the 30 trading days immediately prior to but not including
the conversion date. On the fifth anniversary of the date of issuance, or July
24, 2002, all Series C Shares then outstanding will be automatically converted
into the number of Common Shares equal to the Stated Value of the Series C
Shares being converted divided by the applicable Conversion Price.
Holders of the Series C Shares also received Warrants to purchase that
number of Common Shares equal to 20% of the Stated Value of the Series C Shares
purchased by such holders divided by the exercise price, or 545,455 Common
Shares. The exercise price of the Warrants is $8.80 per share, which is equal to
115% of the average of the closing sale prices of the Common Shares for the five
trading days immediately preceding but not including the date of issuance of the
Series C Shares. The Warrants are currently exerciseable and expire on July 23,
2000.
The Common Shares which may be issued upon conversion of the Series C
Shares, as a dividend thereon, or in payment of a redemption price thereof, and
the Common Shares which may be issued upon exercise of the Warrants, may be
resold by the holders thereof pursuant to a currently effective SEC Registration
Statement.
On September 8, 1997, the Company issued 35,000 restricted Common
Shares, and a Warrant to purchase 100,000 Common Shares at the exercise price of
$9.00 per share, to Continental Capital & Equity Corporation ("CCEC") in
consideration of certain investor relations services provided to the Company
pursuant to a Client Service Agreement dated September 8, 1997. The services
were valued at a total of $271,250, or $7.75 per Common Share, which was the
closing price of the Company's Common Shares on the Nasdaq National Market on
such date. The Warrant is exerciseable for one year and expires on September 8,
1998. No underwriter was involved in the transaction. The Common Shares and
Warrant were sold pursuant to the non-public offering exemption from
registration in Section 4(2) of the Act, and bear a restricted securities
legend.
10
<PAGE> 11
The Common Shares issued to CCEC, and the Common Shares which may be
issued upon exercise of the Warrant, may be resold by CCEC pursuant to a
currently effective SEC Registration Statement.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herein:
10.1 Loan and Security Agreement with Silicon Valley Bank, dated
October 14, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
On August 1, 1997, the Company filed a report on Form 8-K, reporting in
Item 5 the issuance on July 24, 1997, of 24,000 shares of its Series C
Convertible Preferred Stock and related Warrants in a private placement to
institutional investors.
On August 12, 1997, the Company filed a report on Form 8-K/A, amending
its Form 8-K filed on June 12, 1997, to provide the financial statements and
information required by Item 7 thereof.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WavePhore, Inc.
Date: November 13, 1997 By /s/ David E. Deeds
-------------------
David E. Deeds,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 13, 1997 By /s/ Kenneth D. Swenson
----------------------
Kenneth D. Swenson,
Executive Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
12
<PAGE> 13
EXHIBIT INDEX
Exhibit Exhibit
Number Description
10.1 Loan and Sercurity Agreement with Silicon Valley Bank, dated
October 14, 1997
27 Financial Data Schedule
13
<PAGE> 1
EXHIBIT 10.1
WAVEPHORE, INC.
LOAN AND SECURITY AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION..........................................2
1.1 Definitions..................................................2
1.2 Accounting and Other Terms...................................8
2. LOAN AND TERMS OF PAYMENT.............................................8
2.1 Credit Extensions............................................8
2.2 Overadvances................................................10
2.3 Interest Rates, Payments, and Calculations..................10
2.4 Crediting Payments..........................................10
2.5 Fees........................................................11
2.6 Additional Costs............................................11
3. CONDITIONS OF LOANS..................................................12
3.1 Conditions Precedent to Initial Credit Extension............12
3.2 Conditions Precedent to all Credit Extensions...............12
4. CREATION OF SECURITY INTEREST........................................12
4.1 Grant of Security Interest..................................12
4.2 Delivery of Additional Documentation Required...............13
4.3 Right to Inspect............................................13
5. REPRESENTATIONS AND WARRANTIES.......................................13
5.1 Due Organization and Qualification..........................13
5.2 Due Authorization; No Conflict..............................13
5.3 No Prior Encumbrances.......................................13
5.4 Bona Fide Eligible Accounts.................................13
5.5 Merchantable Inventory......................................14
5.6 Intellectual Property.......................................14
5.7 Name; Location of Chief Executive Office....................14
5.8 Litigation..................................................14
5.9 No Material Adverse Change in Financial Statements..........14
5.10 Solvency....................................................14
5.11 Regulatory Compliance.......................................15
5.12 Environmental Condition.....................................15
5.13 Taxes.......................................................15
5.14 Subsidiaries................................................15
5.15 Government Consents.........................................15
5.16 Full Disclosure.............................................15
6. AFFIRMATIVE COVENANTS................................................16
6.1 Good Standing...............................................16
6.2 Government Compliance.......................................16
6.3 Financial Statements, Reports, Certificates.................16
6.4 Inventory; Returns..........................................17
6.5 Taxes.......................................................17
6.6 Insurance...................................................17
6.7 Principal Depository........................................18
6.8 Quick Ratio.................................................18
6.9 Liquidity...................................................18
i
<PAGE> 3
6.10 Debt-Net Worth Ratio........................................18
6.11 Profitability...............................................18
6.12 Registration of Intellectual Property Rights................18
6.13 Further Assurances..........................................19
7. NEGATIVE COVENANTS...................................................19
7.1 Dispositions................................................19
7.2 Changes in Business, Ownership, Management or
Business Locations..........................................19
7.3 Mergers or Acquisitions.....................................19
7.4 Indebtedness................................................19
7.5 Encumbrances................................................20
7.6 Distributions...............................................20
7.7 Investments.................................................20
7.8 Transactions with Affiliates................................20
7.9 Intellectual Property Agreements............................20
7.10 Subordinated Debt...........................................20
7.11 Inventory...................................................20
7.12 Compliance..................................................21
8. EVENTS OF DEFAULT....................................................21
8.1 Payment Default.............................................21
8.2 Covenant Default............................................21
8.3 Material Adverse Change.....................................21
8.4 Attachment..................................................21
8.5 Insolvency..................................................22
8.6 Other Agreements............................................22
8.7 Subordinated Debt...........................................22
8.8 Judgments...................................................22
8.9 Misrepresentations..........................................22
9. BANK'S RIGHTS AND REMEDIES...........................................22
9.1 Rights and Remedies.........................................22
9.2 Power of Attorney...........................................23
9.3 Accounts Collection.........................................24
9.4 Bank Expenses...............................................24
9.5 Bank's Liability for Collateral.............................24
9.6 Remedies Cumulative.........................................24
9.7 Demand; Protest.............................................25
9.8 Intellectual Property Security Agreement....................25
10. NOTICES..............................................................25
11. CHOICE OF LAW AND VENUE..............................................26
12. GENERAL PROVISIONS...................................................26
12.1 Successors and Assigns......................................26
12.2 Indemnification.............................................26
12.3 Time of Essence.............................................26
12.4 Severability of Provisions..................................26
12.5 Amendments in Writing, Integration..........................27
12.6 Counterparts................................................27
12.7 Survival....................................................27
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<PAGE> 4
This LOAN AND SECURITY AGREEMENT is entered into as of October 14,
1997, by and between SILICON VALLEY BANK ("Bank") and WAVEPHORE, INC.
("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions.
As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means a loan advance under
the Committed Revolving Line.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and
each of such Person's senior executive officers, directors, partners and, for
any Person that is a limited liability company, such 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, and enforcement of
the Loan Documents; and Bank's reasonable attorneys' fees and expenses incurred
in amending, enforcing or defending the Loan Documents (including fees and
expenses of appeal or review, or those incurred in any Insolvency Proceeding),
whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
"Borrowing Base" means an amount equal to the sum of
(i) eighty percent (80%) of Eligible Accounts, plus (ii) the lesser of thirty
percent (30%) of Eligible Inventory (valued at the lower of cost or wholesale
fair market value) or Two Hundred Fifty Thousand Dollars ($250,000), 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.
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<PAGE> 5
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit
A attached hereto.
"Committed Revolving Line" means a credit extension
of up to Three Million Dollars ($3,000,000).
"Committed Equipment Line means a credit extension of
up to One Million Dollars ($1,000,000).
"Contingent Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted or
sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights,
copyright applications, copyright registrations and like protections in each
work or authorship and derivative work thereof, whether published or unpublished
and whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Equipment
Advance, or any other extension of credit by Bank for the benefit of Borrower
hereunder.
"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 Credit Extensions 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.
"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 fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. Unless otherwise agreed to by Bank in
writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed
to pay within ninety (90) days of
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<PAGE> 6
invoice date; except with respect to Accounts owing from Reuters and Muzak,
which Accounts shall not be excluded under this subsection (a) unless such
Accounts have not been paid within one hundred twenty (120) days of invoice
date;
(b) Accounts with respect to an account debtor,
fifty percent (50%) of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date; except with respect to Reuters and
Muzak, whose Accounts shall not be excluded under this subsection (b) unless
fifty percent (50%) of such Accounts have not been paid within one hundred
twenty (120) days of invoice date;
(c) Accounts with respect to an account debtor,
including Affiliates, whose total obligations to Borrower exceed twenty-five
percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
(d) Accounts with respect to which the account
debtor does not have its principal place of business in the United States;
(e) Accounts with respect to which the account
debtor is a federal, state or local governmental entity or any department,
agency, or instrumentality thereof;
(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;
(j) Accounts the collection of which Bank
reasonably determines to be doubtful.
"Eligible Inventory" means that portion of Borrower's
Inventory consisting of raw materials located at Borrower's principal place of
business or such other locations as are permitted under Section 7.11 and that
complies with the representations and warranties set forth in Section 5.5.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in
Section 2.1.2.
"Equipment Availability End Date" has the meaning set
forth in Section 2.1.2.
"ERISA" means the Employment Retirement Income
Security Act of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles
as in effect in the United States from time to time.
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<PAGE> 7
"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 of
Borrower's right, title and interest in and to the following:
(a) Copyrights, Trademarks, Patents, and Mask
Works;
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software products
now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be
available to Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of
past, present and future infringement of any of the rights included above, with
the right, but not the obligation, to sue for and collect such damages for said
use or infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of
the Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;
(f) All amendments, renewals and extensions of
any of the Copyrights, Trademarks, Patents or Mask Works; and
(g) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership 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.
4
<PAGE> 8
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other present or future
agreement entered into between Borrower and/or for the benefit of Bank in
connection with this Agreement, all as amended, extended or restated from time
to time.
"Material Adverse Effect" means a material adverse
effect on (i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower
to repay the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means the date immediately preceding
the third anniversary of the Closing Date.
"Negotiable Collateral" means all of Borrower's
present and future letters of credit of which it is a beneficiary, notes,
drafts, instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest,
Bank Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"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 thirteenth (13th) calendar
day of each month, commencing on the first such date after the Closing Date and
ending on the Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date
and disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in
the ordinary course of business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof (x) maturing within one (1) year from the date of acquisition
thereof, or (y) maturing beyond one (1) year but convertible to cash within
thirty (30) days; (ii) commercial paper maturing no more than one (1) year from
the date of creation thereof and currently having a rating of A1 or P1 or higher
from either Standard & Poor's Corporation or Moody's Investors Service, Inc.,
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Bank, and (iv) money market mutual funds
registered with the S.E.C.
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<PAGE> 9
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the same have
no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired
or held by Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Leases or subleases and 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 incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) through (c) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
unrestricted cash; unrestricted cash-equivalents; net, billed accounts
receivable and investments with maturities of fewer than one year of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief
Executive Officer, the President, the Chief Financial Officer and the Controller
of Borrower.
"Revolving Maturity Date" means the date immediately
preceding the first 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 fifty percent (50%) of the voting stock or
other equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
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<PAGE> 10
"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,
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.
1.2 Accounting and Other Terms.
All accounting terms not specifically defined herein
shall be construed in accordance with GAAP and all calculations and
determinations made hereunder shall be made in accordance with GAAP. When used
herein, the term "financial statements" shall include the notes and schedules
thereto. The terms "including" / "includes" shall always be read as meaning
"including (or includes) without limitation," when used herein or in any other
Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions.
Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 Revolving Advances
(a) Subject to and upon the terms and
conditions of this Agreement, Bank agrees to make Advances to Borrower in an
aggregate outstanding amount not to exceed the Committed Revolving Line or the
Borrowing Base, whichever is less. Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time prior to the Revolving Maturity Date.
(b) Whenever Borrower desires an
Advance, Borrower will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. Pacific time, on the Business Day that the Advance is to be
made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit B hereto. Bank is authorized to make
Advances under this Agreement, based upon instructions received from a
Responsible Officer or a designee of a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer or a designee thereof, and Borrower shall indemnify and
hold Bank harmless for any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of Advances made under this Section 2.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall
terminate on the Revolving Maturity Date, at which time all Advances under this
Section 2.1.1 shall be immediately due and payable.
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<PAGE> 11
2.1.2 Equipment Advances.
(a) Subject to and upon the terms and
conditions of this Agreement, at any time from the date hereof through October
14, 1998 (the "Equipment Availability End Date"), Bank agrees to make advances
(each an "Equipment Advance" and, collectively, the "Equipment Advances") to
Borrower in an aggregate outstanding amount not to exceed the Committed
Equipment Line. To evidence the Equipment Advance or Equipment Advances,
Borrower shall deliver to Bank, at the time of each Equipment Advance request,
an invoice for the equipment to be purchased. The Equipment Advances shall be
used only to purchase Equipment purchased on or after ninety (90) days prior to
the date hereof and shall not exceed one hundred percent (100%) of the invoice
amount of such equipment approved from time to time by Bank, excluding taxes,
shipping, warranty charges, freight discounts and installation expense.
(b) Interest shall accrue from the date
of each Equipment Advance at the rate specified in Section 2.3(a), and shall be
payable monthly for each month through the month in which the Equipment
Availability End Date falls. Any Equipment Advances that are outstanding on the
Equipment Availability End Date will be payable in twenty-four (24) equal
monthly installments of principal, plus all accrued interest, beginning on the
Payment Date of each month following the Equipment Availability End Date and
ending on the Maturity Date. Equipment Advances, once repaid, may not be
reborrowed.
(c) When Borrower desires to obtain an
Equipment Advance, Borrower shall notify Bank (which notice shall be
irrevocable) by facsimile transmission to be received no later than 3:00 p.m.
Pacific time one (1) Business Day before the day on which the Equipment Advance
is to be made. Such notice shall be substantially in the form of Exhibit B. The
notice shall be signed by a Responsible Officer or its designee and include a
copy of the invoice for the Equipment to be financed.
(d) The Committed Equipment Line shall
terminate on the Maturity Date, at which time all Equipment Advances under this
Section 2.1.2 and any other sums due under this Agreement shall be immediately
due and payable.
2.2 Overadvances.
If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in
Section 2.3(b), any Advances shall bear interest on the average daily balance
thereof, at a per annum rate equal to three quarters of a percentage point
(0.75) above the Prime Rate. Except as set forth in Section 2.3(b), any
Equipment Advances shall bear interest, on the average Daily Balance, at a rate
equal to one (1.0) percentage point above the Prime Rate.
(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence of an Event of Default, at a rate equal
to five (5) percentage points above the interest rate applicable immediately
prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due
and payable on each Payment Date. Borrower hereby authorizes Bank to debit any
accounts with Bank, including, without limitation, Account Number __________ for
payments of principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank
has made against Borrower's accounts. Any such debits against Borrower's
accounts in no way shall be deemed a set-off. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate
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<PAGE> 12
then applicable hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of 12:01 a.m. on the day the Prime
Rate is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments.
Prior to the occurrence of an Event of Default, Bank
shall credit a wire transfer of funds, check or other item of payment to such
deposit account or Obligation as Borrower specifies. After the occurrence of an
Event of Default, the receipt by Bank of any wire transfer of funds, check, or
other item of payment, whether directed to Borrower's deposit account with Bank
or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 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 Thirty
Thousand Dollars ($30,000), which fee shall be due on the Closing Date and shall
be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees.
Bank's customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts and Inventory (not to exceed $2,000 per year), 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 (not
to exceed $6,500) and, after the date hereof, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs.
In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the United States
of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special
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<PAGE> 13
deposit or similar requirement against assets held by, or deposits in or for the
account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term.
Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension.
The obligation of Bank to make the initial Credit
Extension is subject to the condition precedent that Bank shall have received,
in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower
with respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) an intellectual property security agreement
and a negative pledge agreement covering intellectual property;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then
due specified in Section 2.5 hereof;
(g) an audit of Borrower's Accounts and
Inventory, the results of which shall be satisfactory to Bank; and
(h) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions.
The obligation of Bank to make each Credit Extension,
including the initial Credit Extension, is further subject to the following
conditions:
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(a) timely receipt by Bank of the
Payment/Advance Form as provided in Section 2.1; and
(b) the representations and warranties contained
in Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Credit
Extension. The making of each Credit Extension shall be deemed to be a
representation and warranty by Borrower on the date of such Advance 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 constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral 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 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, except for states as to which any failure to so qualify
would not have a Material Adverse Effect.
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5.2 Due Authorization; No Conflict.
The execution, delivery, and performance of the Loan
Documents are within Borrower's powers, have been duly authorized, and are not
in conflict with nor constitute a breach of any provision contained in
Borrower's Articles/Certificate of Incorporation or Bylaws, nor will they
constitute an event of default under any material agreement to which Borrower is
a party or by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound, which default could
have a Material Adverse Effect.
5.3 No Prior Encumbrances.
Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts.
The Eligible Accounts are bona fide existing
obligations. The service or property giving rise to such Eligible Accounts has
been performed or delivered to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor whose accounts are included in any Borrowing
Base Certificate as an Eligible Account.
5.5 Merchantable Inventory.
All Inventory is in all material respects of good and
marketable quality, free from all material defects.
5.6 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 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 thirty (30) days prior written
notice to Bank, do business under any name other than that specified on the
signature page hereof. The chief executive office of Borrower is located at the
address indicated in Section 10 hereof.
5.8 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 could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
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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; the 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 could have a Material Adverse Effect. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940. Borrower is not engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve System).
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.12 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.
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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 currently conducted.
5.16 Full Disclosure.
No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing.
Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance.
Borrower shall meet, and shall cause each Subsidiary
to meet, the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. Borrower shall comply, and shall cause each
Subsidiary to comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, noncompliance with which could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates.
Borrower shall deliver to Bank: (a) as soon as
available, but in any event within thirty (30) days after the end of each month,
a company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during such period, in a form and certified
by an Officer of Borrower reasonably acceptable to Bank; (b) as soon as
available, but in any event within ninety (90) days after the end of Borrower's
fiscal year, audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
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.
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Within fifteen (15) days after the last day of each
month Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto, together with
aged listings of accounts receivable and accounts payable and a schedule of
Inventory.
Within thirty (30) days after the last day of each
month Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
Bank shall have a right from time to time hereafter
to audit Borrower's Accounts and Inventory at Borrower's expense, provided that
such audits will be conducted no more often than every six (6) months unless an
Event of Default has occurred and is continuing.
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 Fifty
Thousand Dollars ($50,000).
6.5 Taxes.
Borrower shall make, and shall cause each Subsidiary
to make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is (i)contested in good faith
by appropriate proceedings, (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. Borrower shall also
maintain insurance relating to Borrower's ownership and use of the Collateral in
amounts and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as are reasonably
satisfactory to Bank. All such policies of property insurance shall contain a
lender's loss payable endorsement, in a form satisfactory to Bank, showing Bank
as an additional loss payee thereof and all liability insurance policies shall
show the Bank as an additional insured, and shall specify that the insurer must
give at least twenty (20) days notice to Bank before canceling its policy for
any reason. At Bank's request, Borrower shall deliver to Bank certified copies
of such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
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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, excluding
deferred revenues, of at least 1.2 to 1.0.
6.9 Liquidity.
Borrower shall maintain, as of the last day of each
calendar month, a ratio of (a) unrestricted cash and cash-equivalents, plus the
lesser of (i) the Committed Revolving Line or (ii) the Borrowing Base, minus the
aggregate amount of outstanding Advances, to (b) the aggregate amount of
outstanding Equipment Advances of at least 2.0 to 1.0.
6.10 Debt-Net Worth Ratio.
Borrower shall maintain, as of the last day of each
calendar month, a ratio of Total Liabilities less Subordinated Debt, excluding
deferred revenues, to Tangible Net Worth plus Subordinated Debt of not more than
1.0 to 1.0.
6.11 Profitability.
Borrower may incur losses (excluding any
extraordinary write-offs of research and development costs incurred in
connection with acquisitions permitted under Section 7.3) not to exceed: (i)
Three Million Eight Hundred Thousand Dollars ($3,800,000) for the fiscal quarter
ending September 30, 1997; (ii) Three Million Six Hundred Thousand Dollars
($3,600,000) for the fiscal quarter ending December 31, 1997; (iii) Five Million
Dollars ($5,000,000) for the fiscal quarter ending March 31, 1998, and (iv)
Three Million Eight Hundred Thousand Dollars ($3,800,000) for the fiscal quarter
ending June 30, 1998.
6.12 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 thirty (30) 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, and
Copyrights, (ii) use its best efforts to detect infringements of the Trademarks,
Patents, and Copyrights and promptly advise Bank in writing of material
infringements detected and (iii) not allow any Trademarks, Patents, or
Copyrights 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.
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(d) Bank shall have the right, but not the
obligation, to take, at Borrower's sole expense, any actions that Borrower is
required under this Section 6.12 to take but which Borrower fails to take, after
fifteen (15) days' notice to Borrower. Borrower shall reimburse and indemnify
Bank for all reasonable costs and reasonable expenses incurred in the reasonable
exercise of its rights under this Section 6.12.
6.13 Further Assurances.
At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit
Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following:
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers (i) of inventory
in the ordinary course of business, (ii) of licenses and similar arrangements
for the use of the property of Borrower or its Subsidiaries in the ordinary
course of business, (iii) of worn-out or obsolete Equipment, or (iv) other
Transfers not otherwise permitted by this Section 7.1 not exceeding Three
Hundred Thousand Dollars ($300,000) in the aggregate in any fiscal year.
7.2 Changes in Business, Ownership, Management or
Business Locations.
Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership or
management. Borrower will not, without at least thirty (30) days prior written
notification to Bank, relocate its chief executive office or, without at least
fifteen (15) days prior written notification to Bank, add any new offices or
business locations.
7.3 Mergers or Acquisitions.
Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person, except
that Borrower may acquire the business, property, fixed assets or stock of
Persons in a related business (each, an "Acquisition"), provided that (i) no
Event of Default has occurred and is continuing, and (ii) immediately following
the consummation of any such Acquisition there shall exist no condition or event
that constitutes an Event of Default.
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.
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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 that Borrower may pay dividends on its preferred stock in an
aggregate amount not to exceed Two Million Five Hundred Eighty Thousand Dollars
($2,580,000) in any fiscal year.
7.7 Investments.
Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments, and Investments constituting acquisitions
permitted under Section 7.3.
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 non-affiliated 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 judgment.
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 any Inventory having an aggregate fair market value of at
least $100,000 only at the locations set forth in the Schedule attached hereto
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.
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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 Advance for such
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default.
If Borrower fails to pay, when due, any of the
Obligations;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation
under Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11 or 6.12 or violates any of
the covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform,
keep, or observe any other material term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan Documents, or in any
other present or future agreement between Borrower and Bank and as to any
default under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure such default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default (provided
that no Credit Extensions will be required to be made during such cure period);
8.3 Material Adverse Change.
If there (i) occurs a material adverse change in the
business, operations, or condition (financial or otherwise) of Borrower or (ii)
is a material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority of Bank's
security interests in the Collateral;
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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 (10) 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 (10) 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 thirty (30) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements.
If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt.
If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments.
If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations.
If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
20
<PAGE> 24
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 Borrower's premises)
as Bank determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any
public sale, or at any private sale as permitted by law; and
(i) Any deficiency that exists after disposition
of the Collateral as provided above will be paid immediately by Borrower.
21
<PAGE> 25
(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; (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 or Trademarks acquired by Borrower after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents, or Trademarks 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 California Uniform Commercial
Code, provided Bank may exercise such power of attorney to sign the name of
Borrower on any of the documents described in Section 4.2 regardless of whether
an Event of Default has occurred. The appointment of Bank as Borrower's attorney
in fact, and each and every one of Bank's rights and powers, being coupled with
an interest, is irrevocable until all of the Obligations have been fully repaid
and performed and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection.
Upon the occurrence and during the continuance of an
Event of Default, Bank may notify any Person owing funds to Borrower of Bank's
security interest in such funds and verify the amount of such Account, and
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and, if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses.
If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
22
<PAGE> 26
9.5 Bank's Liability for Collateral.
So long as Bank complies with reasonable banking
practices, Bank shall not in any way or manner be liable or responsible for: (a)
the safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the
Loan Documents, and all other agreements shall be cumulative. Bank shall have
all other rights and remedies not expressly set forth herein as provided under
the Code, by law, or in equity. No exercise by Bank of one right or remedy shall
be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 Demand; Protest.
Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
9.8 Intellectual Property Security Agreement.
Bank shall not file or register the Intellectual
Property Security Agreement unless and until Borrower fails to perform any
obligation under (i) Sections 6.8, 6.9, or 6.10 as of the last days of any two
consecutive months, or (ii) Section 6.11 as of the last days of any two
consecutive fiscal quarters. If Borrower fails to perform any obligation under
Sections 6.8, 6.9, or 6.10 as of the last days of any two consecutive months, or
if Borrower fails to perform any obligation under Section 6.11 as of the last
days of any two consecutive fiscal quarters, then, in addition to all other
rights and remedies provided for under this Agreement, Bank may file and/or
register, as appropriate, the Intellectual Property Security Agreement with the
United States Patent and Trademark Office, the United States Copyright Office,
or such other office as Bank deems necessary or desirable to perfect its
security interest in the Intellectual Property Collateral. After the date of any
such filing of the Intellectual Property Security Agreement by Bank, provided
Bank has not declared all Obligations immediately due and payable pursuant to
Section 9.1 hereof, upon receipt of financial statements and a Compliance
Certificate from Borrower demonstrating to Bank's satisfaction that Borrower has
achieved compliance with Sections 6.8, 6.9, 6.10, and 6.11 as of the last day of
any month following the filing of the Intellectual Property Security Agreement,
Bank shall release or cause to be released any filing of the Intellectual
Property Security Agreement made pursuant to this Section 9.8. Nothing in this
Section 9.8 shall prohibit Bank from exercising any remedy available to it under
this Agreement or the Loan Documents.
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:
23
<PAGE> 27
If to Borrower: WavePhore, Inc.
3311 North 44th Street
Phoenix, AZ 85018
Attn: Mr. Kenneth Swenson
FAX: (602) 952-5517
If to Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: Mr. Kevin Conway
FAX: (408) 496-2599
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard to
principles of conflicts of law. 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 RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns.
This Agreement shall bind and inure to the benefit of
the respective successors and permitted assigns of each of the parties;
provided, however, that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Bank's prior written consent, which consent may be
granted or withheld in Bank's sole discretion. Bank shall have the right without
the consent of or notice to Borrower to sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Bank's obligations,
rights and benefits hereunder.
12.2 Indemnification.
Borrower shall indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
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.
24
<PAGE> 28
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.
25
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
WAVEPHORE, INC.
By: /s/ Kenneth D. Swenson
----------------------------
Title: Executive V.P. & CFO
-------------------------
SILICON VALLEY BANK
By: /s/ Stephen D. Judd
----------------------------
Title: Sr. Vice President
-------------------------
26
<PAGE> 30
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing;
(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.
A-1
<PAGE> 31
EXHIBIT B
LOAN PAYMENT/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) 496-2426 TIME:
------------------------------
FROM: WavePhore, Inc.
---------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------------------
PHONE NUMBER:
-------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
----------------------------- ---------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
-------------------------
PRINCIPAL PAYMENT (ONLY) $
-------------------------
INTEREST PAYMENT (ONLY) $
-------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
-------------------------
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 Advance confirmed by this Borrowing
Certificate; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
B-1
<PAGE> 32
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 Phone #
- ----------------------------------------- --------------------------
Received By (Bank) Phone #
---------------------------------------------
Authorized Signature (Bank)
B-2
<PAGE> 33
EXHIBIT C
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower: WavePhore, Inc. Lender: Silicon Valley Bank
Commitment Amount: $3,000,000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C> <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 $_____
14. Eligible Accounts (#3 minus #13) $_____
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_____
INVENTORY
16. Inventory Value as of _____ $_____
17. LOAN VALUE OF INVENTORY
(Lesser of 30% of #16 or $250,000) $_____
BALANCES
18. Maximum Loan Amount $_____
19. Total Funds Available [Lesser of #18 or (#15 plus #17)] $_____
20. Present balance owing on Line of Credit $_____
21. Outstanding under Sublimits ( ) $_____
22. RESERVE POSITION (#19 minus #20 and #21) $_____
</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.
COMMENTS:
WAVEPHORE, INC.
By:
------------------------------
Authorized Signer
BANK USE ONLY
Rec'd By:
------------------------
Auth. Signer
Date:
----------------------------
Verified:
-----------------------
Auth. Signer
Date:
----------------------------
- ---------------------------------
C-1
<PAGE> 34
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: WAVEPHORE, INC.
The undersigned authorized officer of WavePhore, Inc. 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 REQUIRED COMPLIES
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
A/R & A/P Agings & Inventory report Monthly within 15 days Yes No
A/R & Inventory Audit Initial and Semi-Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain on a Monthly Basis:
Minimum Quick Ratio(1) 1.2:1.0 _____:1.0 Yes No
Maximum Debt/Tangible Net Worth(1) 1.0:1.0 _____:1.0 Yes No
Minimum Liquidity 2.0:1.0 _____:1.0 Yes No
Profitability: Quarterly $________(2) $________ Yes No
</TABLE>
(1) Excluding deferred revenues
(2) Permitted quarterly losses not to exceed: $3,800,000 for quarter ending
9/30/97; $3,600,000 for quarter ending 12/31/97; $5,000,000 for quarter
ending 3/31/98, and $3,800,000 for quarter ending June 30, 1998.
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
- ---------------------------------
SIGNATURE
- ---------------------------------
TITLE
- ---------------------------------
BANK USE ONLY
Received by:
-------------------------------
AUTHORIZED SIGNER
Date:
--------------------------------------
Verified:
----------------------------------
AUTHORIZED SIGNER
Date:
--------------------------------------
Compliance Status: Yes No
D-1
<PAGE> 35
DATE
D-2
<PAGE> 36
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: WavePhore, Inc. Bank: Silicon Valley Bank
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $3,000,000, and a Variable Rate, Equipment Line of Credit of a
principal amount up to $1,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: short-term working
capital and purchase of Equipment.
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:
Revolving Line Equipment Line
Amount paid to Borrower directly: $ $
-------- -------
Undisbursed Funds $ $
-------- ---------
Principal $3,000,000 $1,000,000
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $
--------
$30,000 Loan Fee
$ 2,200 Accounts Receivables Audit
Other Charges Paid in Cash: $
--------
$TBD Patent Filing Fees
$TBD Trademark Filing Fees
$TBD Copyright Filing Fees
$6,500 Outside Counsel Fees and Expenses
Total Charges Paid in Cash $
--------
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
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF OCTOBER 14, 1997.
BORROWER:
WAVEPHORE, INC.
- -----------------------------------
Authorized Officer
- --------------------------------------------------------------------------------
<PAGE> 37
AGREEMENT TO PROVIDE INSURANCE
GRANTOR: WavePhore, Inc. BANK: Silicon Valley Bank
INSURANCE REQUIREMENTS. WavePhore, Inc. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodations to Grantor 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"):
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 canceled or
diminished without a minimum of twenty (20)
days' prior written notice to Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance
company Grantor may choose that is reasonably acceptable to Bank. Grantor
understands that credit may not be denied solely because insurance was not
purchased through Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of October 14, 1997, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Grantor'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. GRANTOR 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, GRANTOR'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,
Grantor 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.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT
TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER
14, 1997.
GRANTOR:
WAVEPHORE, INC.
x
------------------------------
Authorized Officer
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
<PAGE> 38
CORPORATE RESOLUTIONS TO BORROW
BORROWER: WavePhore, Inc.
I, the undersigned Secretary or Assistant Secretary of WavePhore, Inc.
(the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Indiana.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true
and complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
(or by other duly authorized corporate action in lieu of a meeting), duly called
and held, at which a quorum was present and voting, the following resolutions
were adopted:
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
- ------------------- ---------------------- --------------------------
- ------------------- ---------------------- --------------------------
- ------------------- ---------------------- --------------------------
- ------------------- ---------------------- --------------------------
- ------------------- ---------------------- --------------------------
- ------------------- ---------------------- --------------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Loan and Security Agreement dated as of October 14, 1997 (the "Loan
Agreement").
EXECUTE NOTES. To execute and deliver to Bank the promissory note or
notes of the Corporation, on Bank's forms, at such rates of interest and on such
terms as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, or any portion of the notes.
GRANT SECURITY. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
1
<PAGE> 39
LETTERS OF CREDIT; FOREIGN EXCHANGE. To execute letters of credit
applications, foreign exchange agreements and other related documents pertaining
to Bank's issuance of letters of credit and foreign exchange contracts.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances thereunder, and
in all cases, to do and perform such other acts and things, to pay any and all
fees and costs, and to execute and deliver such other documents and agreements
as they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on _______________,
19___ and attest that the signatures set opposite the names listed above are
their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
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2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 21,010
<SECURITIES> 0
<RECEIVABLES> 7,695
<ALLOWANCES> (420)
<INVENTORY> 3,673
<CURRENT-ASSETS> 33,393
<PP&E> 5,396
<DEPRECIATION> 1,177
<TOTAL-ASSETS> 57,454
<CURRENT-LIABILITIES> 13,713
<BONDS> 1,674
36,132
0
<COMMON> 72,253
<OTHER-SE> (65,193)
<TOTAL-LIABILITY-AND-EQUITY> 57,454
<SALES> 15,737
<TOTAL-REVENUES> 15,737
<CGS> 8,607
<TOTAL-COSTS> 8,607
<OTHER-EXPENSES> 23,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (333)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,194)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,194)
<EPS-PRIMARY> (.99)
<EPS-DILUTED> (.99)
</TABLE>
