- - --------------------------------------------------------------------------------
UNITED STATES
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 June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28252
BROADVISION, INC.
-----------------
(Exact name of registrant as specified in its charter)
Delaware 94-3184303
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
333 Distel Circle, Los Altos, California 94022-1404
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(415) 943-3600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES x NO _
As of July 31, 1997 there were 20,279,363 shares of the Registrant's
Common Stock outstanding.
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This is page 1 of 14 pages.
Index to exhibits is on page 15
<PAGE>
BROADVISION, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and six months ended June 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 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
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PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
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SIGNATURES 14
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<PAGE>
<TABLE>
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 4,098 $ 1,564 $ 7,246 $ 2,663
Services 1,929 738 4,072 1,037
-------- -------- -------- --------
Total revenues 6,027 2,302 11,318 3,700
Cost of revenues:
Cost of license revenues 425 93 639 189
Cost of service revenues 1,001 331 2,144 497
-------- -------- -------- --------
Total cost of revenues 1,426 424 2,783 686
-------- -------- -------- --------
Gross profit 4,601 1,878 8,535 3,014
Operating expenses:
Research and development 1,802 1,277 3,482 2,193
Sales and marketing 4,257 2,486 8,461 4,093
General and administrative 700 320 1,446 638
-------- -------- -------- --------
Total operating expenses 6,759 4,083 13,389 6,924
-------- -------- -------- --------
Operating loss (2,158) (2,205) (4,854) (3,910)
Interest and other income 187 51 408 94
Interest and other expense (138) (26) (150) (62)
-------- -------- -------- --------
Net loss $ (2,109) $ (2,180) $ (4,596) $ (3,878)
======== ======== ======== ========
Net loss per share $ (0.10) $ (0.13) $ (0.23) $ (0.22)
======== ======== ======== ========
Shares used in computing net loss per share 20,219 16,822 20,111 17,699
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
BROADVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 11,595 $ 17,608
Short-term investments 794 2,112
Accounts receivable, net 7,129 5,548
Other current assets 645 317
-------- --------
Total current assets 20,163 25,585
Property and equipment, net 3,563 3,024
Other assets 388 321
-------- --------
Total assets $ 24,114 $ 28,930
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,075 $ 3,484
Unearned revenue 1,610 2,625
Deferred maintenance 1,439 924
Current portion of long-term liabilities 365 294
-------- --------
Total current liabilities 6,489 7,327
Long-term liabilities 490 587
Stockholders' equity
Common Stock 39,806 39,318
Deferred compensation (1,806) (2,033)
Accumulated deficit (20,865) (16,269)
-------- --------
Total stockholders' equity 17,135 21,016
-------- --------
Total liabilities and stockholders' equity $ 24,114 $ 28,930
======== ========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BROADVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six months ended
June 30, June 30,
1997 1996
-------- --------
Cash flows from operating activities:
Net loss $ (4,596) $ (3,878)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 712 252
Deferred compensation 227 245
Changes in operating assets and liabilities:
Accounts receivable (1,581) (4,473)
Other assets (395) (288)
Accounts payable and accrued expenses (409) 1,821
Unearned revenue and deferred maintenance (500) 3,475
Other liabilities (4) 19
-------- --------
Net cash used in operating activities (6,546) (2,827)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (1,073) (1,149)
Purchase of short-term investments (1,532) (19,929)
Maturity of short-term investments 2,850 196
-------- --------
Net cash provided by (used in) investing
activities 245 20,882)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 488 19,086
Proceeds from issuance of preferred stock, net
of issuance costs -- 5,055
Payments on capital lease (200) (79)
-------- --------
Net cash provided by financing activities 288 24,062
-------- --------
Net increase (decrease) in cash and cash equivalents (6,013) 353
Cash and cash equivalents, beginning of period/year 17,608 4,311
-------- --------
Cash and cash equivalents, end of period/year $ 11,595 $ 4,664
======== ========
Non-cash investing and financing activities
Acquisition of equipment under capital leases $ 178 $ --
======== ========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BROADVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
BroadVision, Inc. (the "Company") and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Business of the Company
The Company provides an integrated software application system,
BroadVision One-To-One TM, that enables the creation of applications allowing
non-technical business managers to tailor Internet marketing and selling
services to the needs and interests of individual World Wide Web site visitors,
personalizing each visit on a real-time basis.
Interim Financial Information
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form 10-Q and Article 10 of
Regulation S-X. In the Company's opinion, the financial statements include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary to fairly state the Company's financial position and the
results of operations and cash flows. The balance sheet at December 31, 1996 has
been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The accompanying
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Prospectus, Forms 10-K and 10-Q, and
other documents filed with the Securities and Exchange Commission ("SEC"). The
results of the Company's operations for any interim period are not necessarily
indicative of the results of the Company's operations for any other interim
period or for a full fiscal year.
Net Loss Per Share
The net loss per share is computed using net loss and, for periods prior
to the Company's initial public offering ("IPO"), is based on the weighted
average number of shares of common stock outstanding, convertible preferred
stock, on an "as-if-converted" basis, using the exchange rate in effect at the
initial public offering date and dilutive common equivalent shares from stock
options and warrants outstanding using the treasury stock method. In accordance
with certain SEC Staff Accounting Bulletins, such computations include all
common and common equivalent shares issued within 12 months of the initial
filing date as if they were outstanding for all pre-IPO periods presented using
the treasury stock method and the anticipated initial public offering price. For
periods subsequent to the IPO, loss per share is based on weighted average
shares outstanding, excluding the effects of dilutive securities.
6
<PAGE>
Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128
requires the presentation of basic earnings per share ("EPS") and, for companies
with complex capital structures or potentially dilutive securities, such as
convertible debt, options and warrants, diluted EPS. SFAS No. 128 is effective
for annual and interim periods ending after December 15, 1997. The Company
expects that basic EPS and diluted EPS will not differ materially from loss per
share as presented in the accompanying consolidated financial statements.
2) Balance Sheet Detail
Property and Equipment
Property and equipment consisted of the following (in thousands):
June 30, December 31,
1997 1996
---- ----
(unaudited)
Furniture and fixtures $ 861 $ 539
Computers and software 4,046 3,210
Leasehold improvements 231 138
------ ------
5,138 3,887
Less accumulated depreciation and amortization 1,575 863
------ ------
$3,563 $3,024
====== ======
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
June 30, December 31,
1997 1996
---- ----
(unaudited)
Employee benefits $ 387 $ 254
Commissions and bonuses 513 696
Directors and officers insurance premiums 170 283
Taxes payable 258 129
Contractors fees 165 489
Other 645 675
------ ------
$2,138 $2,526
====== ======
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM
THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS FORM 10-Q AND IN THE
COMPANY'S PROSPECTUS, FORMS 10-K AND 10-Q, AND OTHER DOCUMENTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. ANY SUCH FORWARD-LOOKING STATEMENTS SPEAK
ONLY AS OF THE DATE SUCH STATEMENTS ARE MADE.
OVERVIEW
BroadVision provides software application solutions for enterprise
class, personalized business on the global Internet, Intranets, and Extranets.
These solutions enable companies to rapidly deploy and cost-effectively operate
secure, scalable, intelligent, and flexible electronic commerce, customer
self-service, and knowledge management applications over the Net. The
BroadVision One-To-One(TM) application system and One-To-One WebApps(TM) family
of applications support large user and content databases, high transaction
volumes, intelligent agent matching, and seamless integration with existing
business systems. BroadVision applications also incorporate a suite of powerful
management tools that enable non-technical business people to dynamically manage
content and control application behavior from their desktops. BroadVision
software products are fully integrated with consulting services, training, and
technical support to provide comprehensive, end-to-end solutions for the
financial services, high technology, retail/distribution, and telecommunications
industries. BroadVision is headquartered in Los Altos, California and maintains
an extensive network of subsidiaries and licensed resellers in North and South
America, Europe and Asia.
The Company's revenues are derived from software license fees and fees
for its services. The Company generally recognizes license fees when the
software has been delivered, the customer acknowledges an unconditional
obligation to pay, and the Company has no significant obligations remaining.
Professional services revenues generally are recognized as services are
performed. Maintenance revenues are recognized ratably over the term of the
support period, which is typically one year.
Since its inception, the Company has incurred substantial costs to
research, develop, and enhance its technology and products, to recruit and train
a marketing and sales group, and to establish an administrative organization. As
a result, the Company has incurred net losses in each fiscal quarter since
inception and, as of June 30, 1997, had an accumulated deficit of $20.9 million.
The Company anticipates that its operating expenses will increase in the
foreseeable future as it continues the development of its technology, increases
its sales and marketing activities, and creates and expands its distribution
channels. Accordingly, the Company expects to incur additional losses for the
foreseeable future. In addition, the Company's limited operating history makes
the prediction of future results of operations difficult and, accordingly, there
can be no assurance that the Company will achieve or sustain revenue growth or
profitability.
To date, only a limited number of companies have licensed the
BroadVision One-To-One application system. Accordingly, the Company has only a
limited operating history, and its prospects must be evaluated in light of the
risks and uncertainties frequently encountered by a company in its early stage
of development. Some of these risks and uncertainties relate to the new and
rapidly evolving nature of the markets in which the Company operates. Such
8
<PAGE>
market risks include, among other things, the early stage of market development
for online commerce, the dependence of online commerce upon the development of
the Internet, the uncertainty of widespread adoption of online commerce and the
risk of government regulation of the Internet. Other risks and uncertainties
facing the Company relate to the Company's ability to, among other things,
successfully implement its marketing strategy, respond to competitive
developments, continue to develop and upgrade its products and technologies more
rapidly than its competitors, and commercialize its products and services
incorporating these enhanced technologies. There can be no assurance that the
Company will succeed in addressing any or all of these risks. A more complete
description of these and other risks relating to the Company's business is set
forth under the caption "Risk Factors" in the Prospectus, Form 10-K and 10Q, and
other documents filed with the SEC.
RESULTS OF OPERATIONS
Revenues
Total revenues increased to $6,027,000 in the three-month period ended
June 30, 1997 from $2,302,000 for the same quarter in fiscal 1996. For the
six-month period ended June 30, 1997, total revenues increased to $11,318,000
from $3,700,000 for the same period in fiscal 1996.
Software product license revenues increased to $4,098,000 for the
three-month period ended June 30, 1997 from $1,564,000 for the same quarter in
fiscal 1996. For the quarter, the software product license revenues consisted of
North American software product license revenues of $1,147,000, or 28% of the
total software product license revenues, and international software product
license revenues of $2,951,000, or 72% of the total software product license
revenues. For the six-month period ended June 30, 1997, software product license
revenues increased to $7,246,000 from $2,663,000 for the same period in fiscal
1996. For the six-month period ended June 30, 1997, the software product license
revenues consisted of North American software product license revenues of
$2,593,000, or 36% of the total software product license revenues, and
international software product license revenues of $4,653,000, or 64% of the
total software product license revenues. The increases in software product
license revenues reflect the sale of development licenses and web-based
applications of the Company's products, and the recognition of revenues relating
to deployment licenses. Deployment license revenues increased to $2,085,000 for
the three-month period ended June 30, 1997 from $321,000 for the same quarter of
fiscal 1996. For the six-month period ended June 30, 1997, deployment revenues
increased to $3,656,000 from $512,000 for the same period in fiscal 1996. As of
June 30, 1997, the Company had deployed 17 customer sites.
Services revenues increased to $1,929,000 for the three-month period
ended June 30, 1997 from $738,000 for the same quarter of fiscal 1996. For the
quarter, North American services revenues were $1,060,000, or 55% of total
services revenues, and international services revenues were $869,000, or 45% of
total services revenues. For the six-month period ended June 30, 1997, services
revenues increased to $4,072,000 from $1,037,000 for the same period in fiscal
1996. Services revenues increased during these periods from the respective prior
year periods due to the increasing number of licenses of BroadVision One-To-One
with a service or maintenance component.
Operating Expenses
The Company's operating expenses have increased substantially since
inception. The Company believes that continued expansion of its operations is
essential to achieving its objectives and, therefore, intends to increase
expenditures in all operating areas.
9
<PAGE>
Cost of Software Licenses. Cost of software licenses includes the costs
of royalties to third parties for software that is embedded in, or bundled
together and sold with, the Company's products, product media and duplication,
and manuals and commissions payable to distributors. The amount of product
royalties payable is generally related to the volume of sales made by the
Company to its customers. The amount of commissions payable to distributors is
related to the distributor agreement which is generally based on the percentage
of revenue. Cost of software licenses increased to $425,000 for the three-month
period ended June 30, 1997 from $93,000 for the same quarter in fiscal 1996. For
the six-month period ended June 30, 1997, cost of software licenses increased to
$639,000 from $189,000 for the same period in fiscal 1996. The cost of software
licenses increased during these periods due to higher volume of software sales
and sales generated from the Company's Spanish distributor for which a
commission payable is incurred.
Cost of Services. Cost of services consists primarily of
employee-related costs and fees for third-party consultants incurred in
providing consulting, post-contract support, and training services. Cost of
services increased to $1,001,000 for the three-month period ended June 30, 1997
from $331,000 for the same quarter in fiscal 1996. For the six-month period
ended June 30, 1997, cost of services increased to $2,144,000 from $497,000 for
the same period in fiscal 1996. The increase in cost of services was due to the
increasing number of licenses of BroadVision One-To-One with a support or
maintenance component and the increasing fixed costs resulting from the
Company's expansion of its services organization. The Company expects that
services costs will continue to increase in absolute dollar amounts as the
Company continues to expand its services organization.
Research and Development. Research and development expenses consist
primarily of salaries, other employee-related costs, and consulting fees related
to the development of the Company's products. Research and development expenses
increased by 41% to $1,802,000, for the three-month period ended June 30, 1997
from $1,277,000 for the same quarter in fiscal 1996. For the six-month period
ended June 30, 1997, research and development expenses increased by 59% to
$3,482,000 from $2,193,000 for the same period in fiscal 1996. These increases
in the dollar amount of research and development expenses are primarily
attributable to costs of additional personnel in the Company's research and
development operations. The Company continues to direct product development
expenditures toward developing new products and enhancing existing products. The
Company anticipates that research and development expenses will continue to
increase in absolute dollars for the remainder of 1997. All expenditures related
to research and development have been expensed as incurred and, therefore, no
amortization of capitalized software development costs is included.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other employee-related costs, commissions and other incentive
compensation, travel and entertainment, and expenditures for marketing programs
such as collateral materials, trade shows, public relations and creative
services. Sales and marketing expenses increased to $4,257,000 for the
three-month period ended June 30, 1997 from $2,486,000 for the same quarter in
fiscal 1996. For the six-month period ended June 30, 1997, sales and marketing
expenses increased to $8,461,000 from $4,093,000 for the same period in fiscal
1996. These increases in sales and marketing expenses reflect primarily the
hiring of additional sales and marketing personnel, developing and expanding its
sales distribution channels, and expanding promotional activities. The Company
expects to continue to expand its direct sales and marketing efforts and expects
sales and marketing expenses to continue to increase significantly in absolute
dollars.
General and Administrative. General and administrative expenses consist
primarily of salaries, other employee-related costs, and fees for professional
services. General and administrative expenses increased to $700,000 for the
three-month period ended June 30, 1997 from $320,000 for the same quarter in
fiscal 1996. For the six-month period ended June 30, 1997, general and
administrative expenses increased to $1,446,000 from $638,000 for the same
period in fiscal 1996. These increases for general and administrative expenses
10
<PAGE>
reflect primarily the hiring of additional administrative and management
personnel, increases in the provision for doubtful accounts, increased
professional fees, and the addition of other infrastructure to support the
expansion of the Company's operations. The Company expects to continue to add
administrative staff to support broadened operations, expand North American and
international office facilities, and incur costs related to being a public
company and, therefore, expects general and administrative expenses to increase
significantly in absolute dollars.
Prior to its IPO, the Company recorded deferred compensation for the
difference between the exercise price and the deemed fair value of the Company's
Common Stock with respect to 1,794,000 shares issuable upon exercise of options
granted. These amounts were initially recorded as deferred compensation and will
be amortized to cost of services, research and development, selling and
marketing, and general and administrative expense over the vesting periods of
the options, generally 60 months. Deferred compensation amortized to
compensation expense decreased to $117,000 from $135,000 for the same quarter in
1996. For the six-month period ended June 30, 1997, deferred compensation
amortized to compensation expense decreased to $227,000 from $245,000 for the
same period in fiscal 1996. The decrease in the amortization of deferred
compensation is due to the cancellation of stock options for terminated
employees. The amortization of deferred compensation will have an adverse effect
on the Company's reported results of operations through the year 2003, but such
effect will be significantly reduced beginning in the third quarter of 2001.
FACTORS AFFECTING QUARTERLY OPERATING RESULTS
The Company expects to experience significant fluctuations in quarterly
operating results that may be caused by many factors including, but not limited
to, those discussed under the caption "Risk Factors" in the Prospectus, Forms
10-K and 10-Q, and other filed documents with the SEC.
The Company expects that a significant portion of its revenues will be
derived from a limited number of orders, and the timing of receipt, fulfillment
and deployment of such orders is likely to cause material fluctuations in the
Company's operating results, particularly on a quarterly basis, as with many
software companies. Specifically, the Company is taking steps to accelerate the
pace of deployment which could result in acceleration of revenue recognition
and, consequently, the potential for greater fluctuation in quarterly operating
results. The Company anticipates that it will make the major portion of each
quarter's deliveries near the end of each quarter and, as a result, short delays
in delivery of products at the end of a quarter could adversely affect operating
results for that quarter. Due to these factors, quarterly revenues and operating
results are difficult to forecast, and the Company believes that
period-to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as any indication of future
performance.
The Company anticipates that its operating expenses will increase
substantially in the foreseeable future as it continues the development of its
technology, increases its sales and marketing activities, and creates and
expands its distribution channels. Accordingly, the Company expects to incur
additional losses for the foreseeable future. In addition, the Company's limited
operating history makes the prediction of future results of operations difficult
and, accordingly, there can be no assurance that the Company will achieve or
sustain revenue growth or profitability. The Company's limited operating history
also requires that its prospects be evaluated in light of the risks and
uncertainties frequently encountered by a company in its early stage of
development. Some of these risks and uncertainties relate to the new and rapidly
evolving nature of the markets in which the Company operates. Such market risks
include, among other things, the early stage of market development for online
commerce, the dependence of online commerce upon the development of the
Internet, the uncertainty of widespread adoption of online commerce, and the
risk of government regulation of the Internet. Other risks and uncertainties
facing the Company relate to the Company's ability to, among other things,
11
<PAGE>
successfully implement its marketing strategy, respond to competitive
developments, continue to develop and upgrade its products and technologies more
rapidly than its competitors, and commercialize its products and services
incorporating these enhanced technologies. There can be no assurance that the
Company will succeed in addressing any or all of these risks. A more complete
description of these and other risks relating to the Company's business is set
forth under the caption "Risk Factors" in the Prospectus and Form 10-K filing
with the SEC. It is also likely that the Company's future quarterly operating
results from time to time will not meet the expectations of market analysts or
investors, which may have an adverse effect on the price of the Company's Common
Stock.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the IPO, the Company financed its operations primarily through
private placements of Common and Preferred Stock, which provided net proceeds
totaling $15.5 million through May 1996. The IPO yielded net proceeds of
approximately $20.7 million. At June 30, 1997, the Company had approximately
$12.4 million in cash, cash equivalents, and short-term investments. The Company
currently has no significant capital commitments other than commitments under
equipment and operating leases disclosed in its Form 10-K filed with the SEC.
The Company has entered into a loan and security agreement with a bank for
leasehold improvements at the Company's new facility, which the Company
anticipates occupying in late 1997, as disclosed in Form 10-K. The Company does
not believe that it will require additional credit facilities for at least the
next 12 months.
The Company anticipates that its available cash resources will be
sufficient to meet its presently anticipated working capital and capital
expenditure requirements for at least the next 12 months. This estimate is a
forward-looking statement that involves risks and uncertainties, and actual
results may vary as a result of a number of factors, including those discussed
under "Risk Factors" in the Prospectus, Forms 10-K and 10-Q, and other documents
filed with the SEC and those discussed under the caption "Factors Affecting
Operating Results" above and elsewhere herein. The Company may need to raise
additional funds in order to support more rapid expansion, develop new or
enhanced services, respond to competitive pressures, acquire complementary
businesses or technologies, or respond to unanticipated requirements. The
Company may seek to raise additional funds through private or public sales of
securities, strategic relationships, bank or lease financings, or otherwise. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the stockholders of the Company will be reduced,
stockholders may experience additional dilution, or such equity securities may
have rights, preferences, or privileges senior to those of the holders of the
Company's Common Stock. There can be no assurance that additional financing will
be available on acceptable terms, if at all. If adequate funds are not available
or are not available on acceptable terms, the Company may be unable to develop
or enhance its products, take advantage of future opportunities, or respond to
competitive pressures or unanticipated requirements, which could have a material
adverse effect on the Company's business, financial condition, and operating
results.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 28, 1997, the Company held its annual meeting of stockholders,
at which meeting the stockholders took the following actions:
(i) elected Pehong Chen, David Anderson, Yogan Dalal and Koh Boon Hwee
to serve as directors of the Company for the ensuing year and until
their successors are duly elected;
(ii) ratified the selection of KPMG Peat Marwick LLP as independent
auditors of the Company for its fiscal year ending December 31, 1997.
Such actions were taken by the following votes:
Votes For Votes Withheld
--------- --------------
Election of Directors:
Pehong Chen 11,922,036 100
David Anderson 11,922,036 100
Yogan Dalal 11,922,036 100
Koh Boon Hwee 11,922,036 100
Votes For Votes Against Abstentions
--------- ------------- -----------
Ratification of
Auditors 11,922,036 100 200
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item Description
---- -----------
10.1 Loan and Security Agreement, dated July 2, 1997,
between Silicon Valley Bank and the Company.
11.1 Statement re: Computation of Net Loss Per Share
27.1 Financial Data Schedule
13
<PAGE>
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.
BROADVISION, INC
Date: ________________ ----------------------------------------------
Pehong Chen
President and Chief Executive Officer
(Principal Executive Officer)
Date: ________________ ----------------------------------------------
Randall C. Bolten
Vice President, Operations and Chief Financial
Officer
(Principal Financial and Accounting Officer)
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BROADVISION, INC.
INDEX TO EXHIBITS
Exhibit
No. Description
- - -------- -----------
10.1 Loan and Security Agreement, dated July 2, 1997, between Silicon Valley
Bank and the Company
11.1 Statement regarding Computation of Per Share Earnings . . . . . . .
27.1 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . .
- - --------------------------------------------------------------------------------
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BROADVISION, INC.
LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION ......................................... 1
1.1 Definitions ................................................ 1
1.2 Accounting Terms ........................................... 7
2. LOAN AND TERMS OF PAYMENT ........................................... 7
2.1 Advances ................................................... 7
2.2 Prepayment Fee ............................................. 8
2.3 Interest Rates, Payments, and Calculations ................. 8
2.4 Crediting Payments ......................................... 8
2.5 Fees ....................................................... 9
2.6 Additional Costs ........................................... 9
2.7 Term ....................................................... 9
3. CONDITIONS OF LOANS ................................................. 10
3.1 Conditions Precedent to Initial Advance .................... 10
3.2 Conditions Precedent to all Advances ....................... 10
4. CREATION OF SECURITY INTEREST ........................................ 10
4.1 Grant of Security Interest ................................. 10
4.2 Delivery of Additional Documentation Required .............. 11
4.3 Right to Inspect ........................................... 11
5. REPRESENTATIONS AND WARRANTIES ....................................... 11
5.1 Due Organization and Qualification ......................... 11
5.2 Due Authorization; No Conflict ............................. 11
5.3 No Prior Encumbrances ...................................... 11
5.4 Merchantable Inventory ..................................... 11
5.5 Name; Location of Chief Executive Office ................... 11
5.6 Litigation ................................................. 12
5.7 No Material Adverse Change in Financial Statements ......... 12
5.8 Solvency ................................................... 12
5.9 Regulatory Compliance ...................................... 12
5.10 Environmental Condition .................................... 12
5.11 Taxes ...................................................... 12
5.12 Subsidiaries ............................................... 13
5.13 Government Consents ........................................ 13
5.14 Full Disclosure ............................................ 13
6. AFFIRMATIVE COVENANTS ................................................ 13
6.1 Good Standing .............................................. 13
6.2 Government Compliance ...................................... 13
6.3 Financial Statements, Reports, Certificates ................ 13
6.4 Inventory; Returns ......................................... 14
6.5 Taxes ...................................................... 14
6.6 Insurance .................................................. 14
6.7 Principal Depository ....................................... 14
6.9 Quick Ratio ................................................ 15
6.10 Tangible Net Worth. ........................................ 15
6.11 Registration of Intellectual Property Rights ............... 15
6.12 Further Assurances ......................................... 15
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7. NEGATIVE COVENANTS ................................................... 15
7.1 Dispositions ............................................... 15
7.2 Change in Business ......................................... 16
7.3 Mergers or Acquisitions .................................... 16
7.4 Indebtedness ............................................... 16
7.5 Encumbrances ............................................... 16
7.6 Distributions .............................................. 16
7.7 Investments ................................................ 16
7.8 Transactions with Affiliates ............................... 16
7.9 Intellectual Property Agreements ........................... 16
7.10 Subordinated Debt .......................................... 16
7.11 Inventory .................................................. 16
7.12 Compliance ................................................. 16
8. EVENTS OF DEFAULT .................................................... 17
8.1 Payment Default ............................................ 17
8.2 Covenant Default ........................................... 17
8.3 Material Adverse Change .................................... 17
8.4 Attachment ................................................. 17
8.5 Insolvency ................................................. 17
8.6 Other Agreements ........................................... 18
8.7 Subordinated Debt .......................................... 18
8.8 Judgments .................................................. 18
8.9 Misrepresentations ......................................... 18
9. BANK'S RIGHTS AND REMEDIES ........................................... 18
9.1 Rights and Remedies ........................................ 18
9.2 Power of Attorney .......................................... 19
9.3 Accounts Collection ........................................ 19
9.4 Bank Expenses .............................................. 19
9.5 Bank's Liability for Collateral ............................ 20
9.6 Remedies Cumulative ........................................ 20
9.7 Demand; Protest ............................................ 20
10. NOTICES .............................................................. 20
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER ........................... 21
12. GENERAL PROVISIONS ................................................... 21
12.1 Successors and Assigns ..................................... 21
12.2 Indemnification ............................................ 21
12.3 Time of Essence ............................................ 21
12.4 Severability of Provisions ................................. 21
12.5 Amendments in Writing, Integration ......................... 21
12.6 Counterparts ............................................... 21
12.7 Survival ................................................... 22
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This LOAN AND SECURITY AGREEMENT is entered into as of July 2, 1997, by
and between SILICON VALLEY BANK ("Bank") and BROADVISION, 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 Equipment Advances or
Leasehold Advances.
"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, and partners.
"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), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and
records including: 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.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit
A attached hereto.
"Committed Line" means Three Million Dollars
($3,000,000).
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"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.
"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 Advances 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.
"Daily Balance" means the amount of the Obligations
owed at the end of a given day.
"Debt Service Coverage" means, as of the last day of
each fiscal quarter, on a consolidated basis determined in accordance with GAAP,
the ratio of (a) an amount equal to the sum of (i) net income, plus (ii)
depreciation and amortization of intangible assets and other non-cash charges to
income, to (b) an amount equal to (i) the sum of all scheduled repayments for
such period and mandatory prepayments of principal on account of long-term Debt,
plus (ii) interest expense.
"Eligible Equipment" means computer equipment, office
equipment and furnishings and other machines and other equipment as approved by
Bank in its sole discretion (i) in which the Bank has a valid perfected security
interest, and (ii) delivered to Borrower by the manufacturer or vendor after,
upon or not more than ninety (90) days prior to the date of the Closing Date,
which equipment is new and has not previously been used by any Person.
"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" or "Equipment Advances" means a
cash advance or cash advances under the Equipment Facility.
"Equipment Facility" means the facility under which
Borrower may request Bank to issue cash advances, as specified in Section 2.1(a)
hereof.
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"Equipment Maturity Date" means the date that is
thirty-six (36) months after the Facility Availability Date.
"ERISA" means the Employment Retirement Income
Security Act of 1974, as amended, and the regulations thereunder.
"Facility Availability Date" means December 31, 1997.
"GAAP" means generally accepted accounting principles
as in effect from time to time.
"Indebtedness" means (a) all indebtedness for
borrowed money or the deferred purchase price of property or services, including
without limitation reimbursement and other obligations with respect to surety
bonds and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations and (d) all
Contingent Obligations.
"Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means any and all
right, title and interest of Borrower in the following:
(a) Copyrights, Trademarks and Patents;
(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 or Trademarks, 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 or Patents; 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
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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, and Borrower's Books relating to any of
the foregoing.
"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.
"Leasehold Advance" or "Leasehold Advances" means a
cash advance or cash advances under the Leasehold Facility.
"Leasehold Facility" means the facility under which
Borrower may request Bank to issue cash advances, as specified in Section 2.1(b)
hereof.
"Leasehold Improvements" means leasehold
improvements, equipment specifically designed or manufactured for Borrower,
office furnishings, limited use property and other similar property.
"Leasehold Maturity Date" means the date that is
eighty-four (84) months after the Facility Availability Date.
"Lien" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other agreement entered into
between Borrower and Bank in connection with this Agreement, all as amended or
extended 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.
"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, and
Borrower's Books relating to any of the foregoing.
"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 first (lst) calendar day of
each month.
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"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay to
Bank pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"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;
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to
purchase Equipment, other than Equipment financed hereunder, which is secured in
accordance with clause (c) of "Permitted Liens" below and is not in excess of
the lesser of the purchase price of such Equipment or the fair market value of
such Equipment on the date of acquisition; and
(h) Extensions, refinancings, modifications,
amendments and restatements of any of items of Permitted Indebtedness (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) 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 maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same have no priority over any of
Bank's security interests;
(c) Liens (i) upon or in any Equipment or Leasehold
Improvements (other than Equipment or Leasehold Improvements financed hereunder)
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 Leasehold Improvements, or (ii)
existing
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on such Equipment or Leasehold Improvements (other than Equipment or Leasehold
Improvements financed hereunder) 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) Liens securing capital lease obligations on
assets subject to such capital leases except for Equipment or Leasehold
Improvements financed hereunder;
(d) 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 Chief Financial Officer and the Controller of Borrower.
"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 any corporation or partnership in
which (i) any general partnership interest or (ii) more than 50% of the stock of
which by the terms thereof ordinary voting power to elect the Board of
Directors, managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which
the amount thereof shall be determined, 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,
Leasehold Improvements, and (c) all reserves not already deducted from assets,
and (ii) cost overruns in excess of One Hundred Thousand Dollars ($100,000) over
Borrower's budget for Leasehold Improvements, and (ii) Total Liabilities.
"Total Liabilities" means at any date as of which the
amount thereof shall be determined, all obligations that should, in accordance
with GAAP be classified as liabilities on the consolidated balance sheet of
Borrower, including in any event all Indebtedness.
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"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 Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Advances.
(a) Equipment Advances. Subject to and upon the terms
and conditions of this Agreement, Bank agrees, at any time from the date hereof
through the Facility Availability Date, to make Equipment Advances to Borrower
in an aggregate principal amount of up to the Committed Line minus the aggregate
amount of all outstanding Leasehold Advances. Prior to or on the date of each
Equipment Advance, Borrower shall provide invoices and other documents as
requested by Bank, in form and content reasonably satisfactory to Bank,
demonstrating that the Equipment Advance (i) shall be used to finance or
refinance, as the case may be, Eligible Equipment, and (ii) shall not exceed one
hundred percent (100%) of the cost of such Eligible Equipment, excluding any and
all installation, freight or warranty expenses or sales taxes, and (iii) that no
more than twentyfive percent (25%) of the value of any such Eligible Equipment
for each Equipment Advance is comprised of software licenses, taxes, freight,
installation, or other soft costs. Amounts borrowed pursuant to this Section
2.1(a) may not be reborrowed once repaid.
(b) Leasehold Advances. Subject to and upon the terms
and conditions of this Agreement, Bank agrees, at any time from the date hereof
through the Facility Availability Date, to make Leasehold Advances to Borrower
in an aggregate principal amount of up to the Committed Line minus the aggregate
amount of all outstanding Equipment Advances. Prior to or on the date of the
initial Leasehold Advance, Borrower shall provide Bank a copy of its final
Leasehold Improvements budget. Each Leasehold Advance (i) shall be used to
finance Leasehold Improvements, and (ii) shall not exceed one hundred percent
(100%) of the cost of such Leasehold Improvements. Amounts borrowed pursuant to
this Section 2.1(b) may not be reborrowed once repaid.
(c) Procedures. Whenever Borrower desires an Advance,
Borrower shall notify Bank by facsimile transmission or telephone no later than
3:00 p.m. California time, one (1) Business Day before the day on which the
Advance is requested to be made. Each such notification shall be promptly
confirmed by a Payment/Advance Form in substantially the form of Exhibit B
hereto. The notice shall be signed by a Responsible Officer and, as to an
Equipment Advance, include a copy of the invoice for the Eligible Equipment to
be financed. Bank is authorized to make Advances under this Agreement, based
upon instructions received from 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, 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) Interest and Principal. Interest shall accrue
from the date of each Advance at the rate specified in Section 2.3(a), and shall
be payable monthly on the Payment Date of each month through the month in which
the Facility Availability Date falls. Bank shall, at its option, charge such
interest, all Bank Expenses, and all Periodic Payments against any of Borrower's
deposit accounts or against the Committed Line, in which case those amounts
shall thereafter accrue interest at the rate then applicable hereunder. Any
interest not paid when due shall be compounded by
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becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder. All Equipment Advances that are
outstanding on the Facility Availability Date will be payable in thirty-six (36)
equal monthly installments of principal, plus accrued interest, on the Payment
Date for each month through the Equipment Maturity Date. All Leasehold Advances
that are outstanding on the Facility Availability Date will be payable in
eighty-four (84) equal monthly installments of principal, plus accrued interest,
on the Payment Date for each month through the Leasehold Maturity Date.
(d) Maturity. The Equipment Facility shall terminate
on the Equipment Maturity Date, at which time all Obligations owing under the
Equipment Facility shall be immediately due and payable. The Leasehold Facility
shall terminate on the Leasehold Maturity Date, at which time all Obligations
owing under this Section 2.1 and all other amounts under this Agreement shall be
immediately due and payable.
2.2 Prepayment Fee. In the event Borrower prepays, in whole or
in part, any outstanding obligations hereunder, Borrower shall pay to Bank,
concurrently with such payment, a prepayment fee commensurate with interest rate
protection, as assessed by Bank, under the fixed rate option set forth in
Section 2.3(a). Borrower agrees that such fee is compensation to the Bank for
lost profits in connection with such prepayment and does not constitute a
penalty. Bank's determination of such amount shall be made by Bank in good
faith, in its sole discretion, and shall be deemed correct absent manifest
error.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section
2.3(b) and subject to the following sentence, all outstanding Advances shall
bear interest at a floating rate equal to the Prime Rate. Except as set forth in
Section 2.3(b), Borrower shall have a one-time option as to the Advances
outstanding on the Facility Maturity Date, to elect that all outstanding
Advances shall bear interest at a rate equal to three and one-tenth (3.10)
percentage points above the thirty-six (36) month, and eighty-four (84) month,
Treasury Note Yield to maturity for the Equipment Facility and the Lease
Facility, respectively, as such rate is quoted by Bank. Such fixed rate option,
once elected, shall continue for the term of the Equipment Facility and
Leasehold Facility, respectively.
(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 the Payment Date of each month during the term hereof. Bank shall, at
its option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of 12:01 a.m. on the day the Prime
Rate is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire
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transfer of funds, check, or other item of payment shall be immediately applied
to conditionally reduce Obligations, but shall not be considered a payment on
account 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 California 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) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for each appraisal of Collateral and
financial analysis and examination of Borrower performed from time to time by
Bank or its agents; and
(b) Bank Expenses. Upon the date hereof, all Bank
Expenses incurred through the Closing Date, including reasonable attorneys' fees
and expenses, and, after the date hereof, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs. In case any change in any law,
regulation, treaty or official directive or the interpretation or application
thereof by any court or any governmental authority charged with the
administration thereof or the compliance with any guideline or request of any
central bank or other governmental authority (whether or not having the force of
law), in each case after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments
of principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. 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 Leasehold Maturity Date. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation to make Advances under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.
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3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The obligation of
Bank to make the initial Advance 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 incumbency and resolutions authorizing the execution and delivery of
this Agreement;
(c) an intellectual property security agreement;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) a copy of Borrower's final Leasehold Improvements
budget;
(g) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof; 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 Advances. The obligation of
Bank to make each Advance, including the initial Advance, is further subject to
the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1;
(b) timely receipt of the invoices and/or other
documents specified in Section 2.1 hereof; and
(c) 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 Advance 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 Advance. The making of
each Advance 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(c).
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 repayment 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,
in each case, to the extent that a security interest in such Collateral can be
perfected by the filing of a financing statement or, in the case of Collateral
consisting of instruments, documents, chattel paper or certificated securities,
to the extent that Bank takes possession of such Collateral. Bank agrees to
execute and deliver to Borrower from time to time agreements to subordinate its
Lien as Borrower may request and as are necessary to give to other lenders which
finance new Equipment
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for Borrower a first priority security interest in the new Equipment financed so
long as the Liens and the Indebtedness incurred with respect to such Equipment
financing are permitted under this Agreement.
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 Oualification. 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.
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 Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound; except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent and
the Loan Documents constitute an assignment. Borrower is not in default under
any agreement to which it is a party or by which it is bound, which default
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 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.5 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done 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.
5.6 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
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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 Litigation. Except as set forth in the Schedule, there are
no actions or proceedings pending 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. Borrower does not have
knowledge of any such pending or threatened actions or proceedings.
5.8 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 Solvency. The fair saleable value of Borrower's assets
(including good will minus disposition costs) exceeds the fair value of its
liabilities; Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement; and Borrower is able to pay its
debts (including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has
met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of the important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused
to be filed all tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein.
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5.13 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted.
5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make an Advance 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, certified by a Responsible Officer; (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 upon becoming available,
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 and 10-Q 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 the 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 effects 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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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.
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 contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
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 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. Upon Bank's request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank. Borrower shall maintain
average outstanding deposit balances held at Bank of no less than Five Million
Dollars ($5,000,000).
6.8 Cash Position/Debt Service Coverage. Borrower shall
maintain, as of the last day of each calendar month, cash (or cash equivalents)
of no less than Nine Million Dollars ($9,000,000), excluding cash balances
deposited pursuant to the set aside letter between Borrower and its landlord
dated __________________. Notwithstanding the foregoing, from and after the time
Borrower achieves a minimum net profit of at least One Dollar ($1.00), as
determined on a quarterly basis, for a consecutive eighteen (18) month period,
the foregoing Cash Position covenant shall be replaced by a Debt Service
Coverage covenant, and Borrower shall maintain, as of the last day of each
fiscal quarter, a Debt Service Coverage of at least 1.50 to 1.00.
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6.9 Ouick Ratio. Borrower shall maintain, as of the last day
of each calendar month, a ratio of Quick Assets to Current Liabilities
(excluding deferred revenue) of at least 2.0 to 1.0.
6.10 Tangible Net Worth. Borrower shall maintain, on a
consolidated basis, as of the last day of each calendar month, a Tangible Net
Worth plus Subordinated Debt in the following amounts: (i) at least Sixteen
Million Dollars ($16,000,000) for the calendar month ending June 30, 1997; (ii)
at least Fourteen Million Five Hundred Thousand Dollars ($14,500,000) for the
calendar months ending July 31, 1997, August 31, 1997 and September 30, 1997;
and (iii) at least Thirteen Million Five Hundred Thousand Dollars ($13,500,000)
for the calendar month ending October 31, 1997 and for each subsequent calendar
month thereafter.
6.11 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered
(to the extent not already registered) with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, those
intellectual property rights listed on Exhibits A, B and C to the Intellectual
Property Security Agreement delivered to Bank by Borrower in connection with
this Agreement within 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.
(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 6.11 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 6.11.
6.12 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
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7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
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: (i) Transfers
of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of worn-out or obsolete Equipment or Equipment
financed by other vendors.
7.2 Change in Business. 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. Borrower will not, without thirty (30) days prior written
notification to Bank, relocate its chief executive office.
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.
7.4 Indebtedness. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 Investments. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Intellectual Property Agreements. Borrower shall not
permit the inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts, [except to the extent that such provisions are necessary in
Borrower's exercise of its reasonable business judgement.
7.10 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
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7.11 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of the
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.12 Compliance. Become an "investment company" 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 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 the principal
of, or any interest on, any Advances when due and payable; or fails to pay any
portion of any other Obligations not constituting such principal or interest,
including without limitation Bank Expenses, within thirty (30) days of receipt
by Borrower of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any
obligation under Sections 6.7, 6.8, 6.9, 6.10 or 6.11 or violates any of the
covenants contained in Article 7 of this Agreement, or 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 Borrower receives notice thereof or any officer of Borrower becomes
aware thereof; provided, however, that if the default cannot by its nature be
cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default (provided
that no Advances will be required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material
adverse change in Borrower's business or financial condition, or if there is a
material impairment of the prospect of repayment of any portion of the
Obligations or a material impairment of the value or priority of Bank's security
interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets
is attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within 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 Govemment,
or any department, agency, or
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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 Advances 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 ten (10)
days (provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement
to which Borrower is a party with a third party or parties resulting in a right
by such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed under
any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances 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 delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Settle or adjust disputes and claims directly
with account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Without notice to or demand upon Borrower, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection
18
<PAGE>
therewith. With respect to any of Borrower's owned premises, Borrower hereby
grants Bank a license to enter into possession of 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 license or other right,
solely pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, 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 any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public
sale; and
(i) Any deficiency that exists after disposition of
the Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and
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.
19
<PAGE>
9.3 Accounts Collection. At any time from the date of this
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds and verify the amount of such Account. Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and 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 Revolving Facility 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. 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.
9.5 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 inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, 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:
20
<PAGE>
If to Borrower: BroadVision, Inc.
1975 El Camino Real West, Suite 303
Mountain View, CA 94040
Attn: Mr. Peter Downs
FAX: (415) 967-2100
If to Bank: Silicon Valley Bank
1731 Embarcadero Road, Suite 220
Palo Alto, CA 94303
Attn: Ms. Colleen Atkinson
FAX: (415) 812-0640
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
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 defend, indemnify and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
21
<PAGE>
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 orally. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BROADVISION, INC.
By: _________________________________
Title: ______________________________
By: _________________________________
Title: _____________________________
SILICON VALLEY BANK
By: _________________________________
Title: _____________________________
22
<PAGE>
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, and
Borrower's Books relating to any of the foregoing;
(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 and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, financial
assets, investment properties, securities accounts, securities entitlements,
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; and
(g) 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>
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: BROADVISION, 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 (EQUIPMENT ADVANCE) $_______________________
PRINCIPAL INCREASE (LEASEHOLD 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.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REOUEST:
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)
- - --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: BROADVISION, INC.
The undersigned authorized officer of BroadVision, 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.
Please indicate compliance status by circling Yes/No under "Complies" column.
Reporting Covenant Required Complies
- - ------------------ -------- --------
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
Quarterly 10-Q Within 5 days Yes No
=====================================================================
Financial Covenant Required Actual Complies
- - ------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Cash Position(1) $9,000,000(2) $_______ Yes No
Minimum Quick Ratio(3) 2.0:1.0 ____:1.0 Yes No
Minimum Tangible Net Worth(4) (5) $_______ Yes No
Debt Service Coverage 2.0:1.0 ____:1.0 Yes No
(1) Converts to Debt Service Coverage on profitability for 18 months
(2) excluding cash balances deposited pursunat to the set aside letter between
Borrower and its Landlord
(3) Current Liabilities to exclude deferred revenue
(4) 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, Leasehold
Improvements, and (c) all reserves not already deducted from assets, and
(ii) cost overruns in excess of One Hundred Thousand Dollars ($100,000)
over Borrower's budget for Leasehold Improvements, and (ii) Total
Liabilities
(5) (i) $16,000,000 for month ending 6/30/97; (ii) $14,500,000 for months
ending 7/31/97, 8/31/97 and 9/30/97; and (ill) $13,500,000 for month ending
10/31/97 and subsequent months
Comments Regarding Exceptions: See Attached.
BANK USE ONLY
Sincerely,
_____________________________ Received by: _________________________
SIGNATURE AUTHORIZED
_____________________________ SIGNER
TITLE
_____________________________ Date: ________________________________
DATE
Verified:_____________________________
AUTHORIZED
SIGNER
Date: ________________________________
Compliance Status: Yes No
C-1
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: BroadVision, Inc. Bank: Silicon Valley Bank
================================================================================
LOAN TYPE. This is a variable rate, convertible to a fixed rate, equipment and
leasehold line of credit of an aggregate principal amount up to $3,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: equipment and leasehold
improvements financing.
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:
Equipment/Leasehold
-------------------
Amount paid to Borrower directly: $______
Undisbursed Funds $______
Principal $______
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Charges Paid in Cash: $______
$TBD UCC Search Fees
$TBD UCC Filing Fees
$TBD Patent Filing Fees
$TBD Trademark Filing Fees
$TBD Copyright Filing Fees
$TBD Outside Counsel Fees and Expenses (Estimate)
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 JULY 2, 1997.
BORROWER:
_______________________________________
_______________________________________
Authorized Officer
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
================================================================================
Grantor: BroadVision, Inc. Bank: Silicon Valley Bank
================================================================================
INSURANCE REQUIREMENTS. BroadVision, 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 July 2, 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 JULY 2,
1997.
GRANTOR:
____________________________________
X___________________________________
Authorized Officer
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE:__________________ PHONE:________________
AGENT'S NAME:___________________________________________________________________
INSURANCE COMPANY:______________________________________________________________
POLICY NUMBER:__________________________________________________________________
EFFECTIVE DATES:________________________________________________________________
COMMENTS:_______________________________________________________________________
================================================================================
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- - --------------------------------------------------------------------------------
Borrower: BroadVision, Inc.
- - --------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of BroadVision,
Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Delaware.
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, duly called and held, at which a quorum was present and voting (or
by other duly authorized corporate action in lieu of a meeting), 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 and 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 July 2, 1997 (the "Loan
Agreement").
Execute Notes. To execute and deliver to Bank the promissory note or
notes of the Corporation, on Lender'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
Lender 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
<PAGE>
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.
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 July 2, 1997, and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X________________________________________
- - --------------------------------------------------------------------------------
Attachment 1 - Certificate of Incorporation
Attachment 2 - Bylaws
Exhibit 11.1
<TABLE>
BROADVISION, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
(In thousands, except per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Statement of operations data:
Net Loss $ (2,109) $ (2,180) $ (4,596) $ (3,878)
Weighted average number of common
and dilutive equivalent shares
used in computations:
Common Stock 20,219 16,822 20,111 11,615
Preferred stock (as if converted) -- -- -- 2,800
-------- -------- -------- --------
Subtotal 20,219 16,822 20,111 14,415
-------- -------- -------- --------
Pursuant to Staff Accounting Bulletin No.83
Preferred stock converted on as-if
basis at exercise prices less than
the anticipated initial public
offering price -- -- -- 1,967
Stock options -- -- -- 1,317
-------- -------- -------- --------
Shares used in computing net loss
per share 20,219 16,822 20,111 17,699
-------- -------- -------- --------
Net loss per share $ (0.10) $ (0.13) $ (0.23) $ (0.22)
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-Q FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,595
<SECURITIES> 794
<RECEIVABLES> 7,524
<ALLOWANCES> (395)
<INVENTORY> 0
<CURRENT-ASSETS> 20,163
<PP&E> 5,138
<DEPRECIATION> (1,575)
<TOTAL-ASSETS> 24,114
<CURRENT-LIABILITIES> 6,489
<BONDS> 0
0
0
<COMMON> 39,806
<OTHER-SE> (22,671)
<TOTAL-LIABILITY-AND-EQUITY> 24,114
<SALES> 4,098
<TOTAL-REVENUES> 6,027
<CGS> 425
<TOTAL-COSTS> 1,426
<OTHER-EXPENSES> 6,759
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> (2,109)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,109)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
