SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-25036
VIDEONICS, INC.
(Exact name of registrant as specified in its charter)
California 77-0118151
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1370 Dell Ave, Campbell, California 95008
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 866-8300
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 October 29, 1999, there were 5,869,099 shares of the Registrant's
Common Stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
VIDEONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 3,842 $ 5,025 $ 10,901 $ 15,651
Cost of revenues 2,196 2,959 6,333 9,406
-------- -------- -------- --------
Gross profit 1,646 2,066 4,568 6,245
-------- -------- -------- --------
Operating expenses:
Research and development 629 1,173 2,252 3,744
Selling and marketing 1,017 1,685 3,166 5,106
General and administrative 245 336 1,011 1,111
-------- -------- -------- --------
1,891 3,194 6,429 9,961
-------- -------- -------- --------
Operating loss (245) (1,128) (1,861) (3,716)
-------- -------- -------- --------
Other expense net (16) (9) (44) --
-------- -------- -------- --------
Loss before income taxes (261) (1,137) (1,905) (3,716)
Benefit from income taxes -- -- -- (32)
-------- -------- -------- --------
Net loss $ (261) $ (1,137) $ (1,905) $ (3,684)
======== ======== ======== ========
Net loss per common share and per
common share - assuming dilution $ (0.04) $ (0.19) $ (0.32) $ (0.63)
======== ======== ======== ========
Shares used in computing net loss per
common share and per common share - assuming dilution 5,869 5,854 5,865 5,825
======== ======== ======== ========
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
VIDEONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 639 $ 837
Accounts receivable, net 1,162 852
Inventories 4,692 5,830
Prepaids and other current assets 171 122
-------- --------
Total current assets 6,664 7,641
Property and equipment, net 705 1,507
Other assets 44 16
-------- --------
Total assets $ 7,413 $ 9,164
======== ========
LIABILITIES
Current liabilities:
Loan payable to shareholder -- $ 1,000
Accounts payable $ 1,340 947
Accrued expenses 965 1,290
-------- --------
Total current liabilities 2,305 3,237
-------- --------
Long term liabilities:
Loan payable to shareholder 1,035 --
-------- --------
Total liabilities 3,340 3,237
-------- --------
SHAREHOLDERS' EQUITY
Common stock, no par value:
Authorized: 30,000 shares
Issued and outstanding: 5,869 shares at
September 30, 1999 and 5,858 shares at
December 31, 1998 20,698 20,647
Accumulated deficit (16,625) (14,720)
-------- --------
Total shareholders' equity 4,073 5,927
-------- --------
Total liabilities and shareholders' equity $ 7,413 $ 9,164
======== ========
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
VIDEONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
------------------
1999 1998
------- -------
Cash flows from operating activities:
Net cash used in operating activities (198) (464)
------- -------
Cash flows from investing activities:
Proceeds from disposition of Nova Systems 52 --
Purchase of property and equipment (92) (339)
------- -------
Net used in investing activities (40) (339)
------- -------
Cash flows from financing activities:
Proceeds from issuance of loans payable to shareholder 35 1,019
Repayments on loans payable to shareholder -- (19)
Proceeds from issuance of common stock 5 32
------- -------
Net cash provided by financing activities 40 1,032
------- -------
Increase (decrease) in cash and cash equivalents (198) 229
Cash and cash equivalents at beginning of year 837 992
------- -------
Cash and cash equivalents at end of period $ 639 $ 1,221
======= =======
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
VIDEONICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed financial statements at September 30, 1999 and for the nine
month period then ended for Videonics Inc. (the "Company") are unaudited
(except for the balance sheet information as of December 31, 1998, which is
derived from the Company's audited financial statements) and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
condensed financial statements should be read in conjunction with the
financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. The results of operations for this nine month period
ended September 30, 1999 are not necessarily indicative of the results for
the year ending December 31, 1999, or any future interim period.
2. Inventories comprise (in thousands):
September 30, December 31,
1999 1998
---- ----
(unaudited)
Raw materials $3,859 $4,381
Work in process 548 375
Finished goods 285 1,074
------ ------
$4,692 $5,830
====== ======
3. Note Payable to Shareholder:
On April 16, 1999, the Company replaced a $1,000,000 unsecured loan bearing
interest at 8% per year and due on October 16, 1999, with a new loan in the
amount of $1,035,000 bearing interest at a rate of 8% per year and due on
January 16, 2001. The new loan is unsecured and from the same director and
significant shareholder of the Company as the previous loan. Accrued
interest under the new loan is payable at maturity.
5
<PAGE>
VIDEONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Sale of Nova Systems:
On January 29, 1999, the Company completed the sale of certain assets and
the assumption of certain liabilities related to its sale of Nova Systems
Division ("Nova") to a privately held company in Massachusetts. For the
year ended December 31, 1998, Nova recorded revenues of $1.9 million and a
loss from operations of $248,000. For the year ended December 31, 1997,
Nova recorded revenues of $2.8 million and a loss from operations of $1.4
million, which included a write-off of $700,000 of non-performing assets.
Additionally in 1997, the Company wrote off $1.9 million of intangibles
related to Nova. The sale of Nova may provide the Company with net revenues
from royalties of up to a maximum of approximately $450,000, contingent
upon future sales of Nova products by the acquiring company. Royalties will
be paid, to the extent due, by the acquiring company on a monthly basis
from March 1999 until receipt of approximately $450,000. The sale of Nova
did not result in a material capital gain or loss to Videonics.
5. Segment Information:
In 1998, Videonics adopted SFAS 131. At December 31, 1998, Videonics
presented two reportable segments - (1) Video Production and (2) Signal
Processing.
The Company's "Video Production" segment manufactures and sells video
post-production equipment into broadcast, cable, industry and home producer
markets. The Company's "Signal Processing" segment, which was represented
by the Company's Nova Division, manufactured and sold signal conversion and
processing equipment primarily into television and cable studios. As
described in Note 4, the Company's Nova System Division was sold on January
29, 1999.
The table below presents information about reported segments for the nine
months ending September 30, 1999 and 1998 (in thousands):
1999 1998
---- ----
Video Production
Sales $ 10,810 $ 14,165
Operating loss (1,825) (3,512)
Signal Processing
Sales 91 (1) 1,486
Operating loss (36)(1) (204)
(1) Results presented are through January 29, 1999, the date the Company
completed its sale of Nova.
6
<PAGE>
VIDEONICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. Line of Credit
In August 1999, the Company obtained a $1.0 million asset based line of
credit from Venture Banking Group, a division of Cupertino National Bank,
secured by the Company's assets. Interest on any advances will be
calculated at a rate of 1.5% above prime. The Company is subject to various
covenants. The revolving maturity date of this facility is August 25, 2001.
In connection with this agreement the Company has agreed to issue 95,000
warrants to purchase common stock to the bank, at an exercise price of
$0.65. These warrants expire on September 15, 2002. The Company recognized
$46,000 as prepaid financing costs related to these warrants during the
quarter ended September 1999. This amount will be amortized over the term
of the loan. As of the date of this filing, the Company had not borrowed
from this facility.
7. Comprehensive Loss
There are no differences between net loss for the three and nine months
ended September 30, 1998 and 1999 and the comprehensive loss for the these
periods.
8. Recent Accounting Pronouncement:
In June of 1999, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities",
(SFAS 133) which establishes accounting and reporting standards for
derivative instruments, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. Management has evaluated the effects of this standard and believes
there will be no material impact on the Company's financial position or
results of operations. The Company will adopt SFAS 133 as required for its
first quarterly filing of the year 2000.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion in this section "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, particularly statements regarding market
opportunities, market share growth, competitive growth, new product
introductions, success of research and development expenses, customer
acceptance of new products, gross margin and selling, general and
administrative expenses. These forward-looking statements involve risks and
uncertainties, and the cautionary statements set forth below, specifically
those contained in "Factors That May Affect Future Results of Operations,"
identify important factors that could cause actual results to differ
materially from those predicted in any such forward-looking statements.
Such factors include, but are not limited to, adverse changes in general
economic conditions, including adverse changes in the specific markets for
the Company's products, adverse business conditions, decreased or lack of
growth in the market for video post-production equipment, adverse changes
in customer order patterns, increased competition, lack of acceptance of
new products, pricing pressures, lack of success in technological
advancements, risks associated with foreign operations, risks associated
with the Company's efforts to comply with Year 2000 requirements, and other
factors.
Results of Operations
Net Revenues. Net revenues decreased approximately 24% in the third quarter
of 1999 compared to the third quarter of 1998 and decreased 30% in the first
nine months of 1999 compared to the first nine months of 1998. The decrease in
revenue was due in part to the sale of the Company's Nova Division, decreased
sales of the Company's older videographer products and decreased sales of the
Company's Effetto Pronto product, offset partially by sales of the MXProDV
product which was introduced in late August, 1999.
Gross Profit. Gross profit decreased approximately 20% in the third quarter
of 1999 compared to the third quarter of 1998 and decreased 27% in the first
nine months of 1999 compared to the first nine months of 1998. Gross profit, as
a percentage of net revenues, was approximately 43% in the third quarter of 1999
compared to approximately 41% in the third quarter of 1998 and approximately 42%
in the first nine months of 1999 compared to approximately 40% in the first nine
months of 1998. The increase as a percentage of sales between periods is
primarily due to a change in product mix and slightly higher margins on MXProDV
sales.
Research and Development. Research and development expenses decreased 46%
and 40%, respectively, between the quarterly and nine month comparison periods
in fiscal years 1998 and 1999. The decrease was due to the Company's sale of
Nova, a decrease in personnel and reduced use of consultants.
Selling and Marketing. Selling and marketing expenses decreased 40% between
the third quarter of 1998 and the third quarter of 1999 and 38% between the
first nine months of 1998 and the first nine months of 1999. The decrease was
primarily due to the Company's sale of Nova, a decrease in personnel and reduced
advertising expenses. Included in expenses for the third quarter of 1999 was
approximately $52,000 of closing costs associated with the sale of the Company's
German subsidiary. Revenue and assets employed by the Company's German office,
were not material to the consolidated
8
<PAGE>
financial statements. On a go forward basis, the Company will utilize local
distribution to market and sell its products as it does throughout Europe.
General and Administrative. General and administrative expenses decreased
27% between the third quarter of 1998 and third quarter of 1999 decreased 9%
between the nine month comparison periods in fiscal years 1998 and 1999. The
decrease between quarterly periods is primarily due to a decrease in personnel
and the timing of certain general and administrative expenses. The decrease
between nine month comparison periods is due to a decrease in personnel.
Other Expense, net. The Company recorded net interest expense of $16,000 in
the third quarter of 1999 compared to net interest expense of $9,000 in the
third quarter of 1998. The increase in expense is primarily due to interest
expense incurred on higher borrowings during the nine months ended September 30,
1999.
Benefit from Income Taxes. No tax benefit was recognized on this quarter's
loss. During the nine months ended September 30 1999 and 1998, the Company
maintained a 100% valuation allowance against its deferred tax assets due to the
uncertainty surrounding the realization of such assets. If it is determined that
it is more likely than not that the deferred tax assets are realizable, the
valuation allowance will be reduced. During the first nine months of 1998, the
Company recorded a tax benefit totaling $32,000 as a result of a state tax
refund.
Factors That May Affect Future Results of Operations: The Company believes
that in the future its results of operations could be impacted by factors such
as delays in development and shipment of the Company's new products and major
new versions of existing products, market acceptance of new products and
upgrades, growth in the marketplace in which it operates, competitive product
offerings, and adverse changes in general economic conditions in any of the
countries in which the Company does business. The Company's results in prior
years have been affected by these factors, particularly with respect to
developing and introducing new products such as PowerScript, MXPro, Python and
Effetto Pronto in 1996, 1997 and 1998.
Due primarily to the factors noted above, the Company has experienced
substantial volatility in its operations. The Company's future earnings and
stock price may continue to be subject to significant volatility, particularly
on a quarterly basis. Any shortfall in revenue or earnings from levels expected
by securities analysts or anticipated by the Company based upon product
development and introduction schedules could have an immediate and significant
adverse effect on the trading price of the Company's common stock in any given
period. Additionally, the Company may not learn of such shortfalls until late in
the fiscal quarter, which could result in an even more immediate and adverse
effect on the trading price of the Company's common stock. Finally, the Company
participates in a highly dynamic industry, which often results in significant
volatility of the Company's common stock price. See the Company's 1998 Form 10-K
section entitled "Business - Research and Development".
Year 2000 Update
Many currently installed computer systems, software products and other
equipment utilizing microprocessors are coded to accept only two digit entries
in the date code field. These date code
9
<PAGE>
fields will need to accept four digit entries to distinguish twenty-first
century dates from twentieth century dates. This is commonly referred to as the
"Year 2000 issue."
The Company is aware of the Year 2000 issue and has commenced a program to
identify, remediate, test and develop plans to address the Year 2000 issue. Its
corporate networks and computing hardware operate on Unix and Microsoft Windows
NT Operating Systems. The Company relies on its fully integrated Computer
Associates MANMAN system ("MIS system") for all accounting, manufacturing, and
procurement functions. The Company makes use of EDI and other forms of
electronic data exchange with two of its customers and one financial
institution. The Company has no automated manufacturing, or automated testing
systems which could be materially adversely affected by Year 2000 problems.
As of October, 1999, the Company had completed several Year 2000 projects,
including upgrades of its Windows NT Operating System and tape backup software,
evaluation and upgrade of its UNIX workstations and UNIX Operating System for
the HP3000 hardware which supports the Company's MIS system, evaluation and
upgrade of the Company's MIS system, evaluation and upgrade of the Company's
email and servers, evaluation of network routing, interconnect, and firewall
hardware and software compliance, evaluation and upgrade of the Company's
telephone, security, and voicemail equipment and evaluation of the Company's
products. The Company's review of the Year 2000 issue with respect to its
internal systems preliminarily indicates no material problems.
As of October 1999, the following Year 2000 projects are in process:
continued tracking of critical vendors and identification of any material vendor
problems (ongoing during 1999) and evaluation of the Company's EDI partners
(expected completion is November 1999). Although testing is not complete, it
appears that the Company's products are "Year 2000 compliant" although, some
products may require the user to perform a simple reset of the product (ongoing
during 1999). As of October 1999, the Company's aggregate expenditures
(excluding employee costs) in connection with Year 2000 compliance has been less
than $20,000 and the Company estimates the total cost of its Year 2000 projects
will be approximately $50,000.
The Company currently does not anticipate that the cost of Year 2000
compliance will be material to its financial condition or results of operations.
However, satisfactorily addressing the Year 2000 issue is dependent on many
factors, some of which are not completely within the Company's control. Further,
the Company does not currently have any contingency plans if its planning
activities fail. Should the Company's internal systems or the internal systems
of one or more significant vendors, manufacturers or suppliers fail to achieve
Year 2000 compliance, the Company's business and its results of operations could
be adversely affected. The failure to correct a material Year 2000 problem could
result in an interruption in, or failure of, certain normal business activities
or operations. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition. The Company's
Year 2000 compliance project is expected to significantly reduce the Company's
level of uncertainty about the Year 2000 issue and, in particular, about the
Year 2000 compliance and readiness of third parties it deals with. The Company
believes that, with the implementation of new business systems and completion of
the project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
10
<PAGE>
The foregoing statements are forward looking. The Company's actual results
could differ because of several factors, including those set forth in the
subsection entitled "Factors That May Affect Future Results of Operations".
Liquidity and Capital Resources
Net cash used by operations was $198,000 for the nine months ended
September 30, 1999 compared to net cash used in operations of $464,000 for the
same period in 1998. The use of cash from operating activities during the first
nine months of 1999 is primarily due to a net loss before depreciation, an
increase in accounts receivable, offset partially by a decrease in inventory and
an increase in accounts payable. The decrease in cash from operating activities
during the nine months ended September 30, 1998 is primarily due to a net loss
before depreciation, offset partially by a decrease in inventories and
recoverable income taxes. Net cash used by investing activities for the first
nine months ended September 30, 1999 was $40,000, as the Company received
$52,000 in connection with the sale of Nova, offset by property and equipment
expenditures, primarily for computers, software and engineering equipment used
in research and development and other activities. Net cash used by investing
activities for the nine months ended September 30, 1998 was $339,000, due to the
property and equipment expenditures, primarily for computers, software and
engineering equipment used in research and development and other activities. Net
cash provided by financing activities during the nine months of 1999 was
$40,000, primarily due to the receipt of cash from the exercise of the stock
options issued under the Company's Stock Option Plans and an increase in
shareholder loans. Net cash provided by financing activities during the first
nine months of 1998 was $1.0 million, primarily because of shareholder loans and
the receipt of cash from the exercise of the stock options issued under the
Company's Stock Option Plans.
The Company has incurred losses and negative cash flows from operations for
each of the two years in the period ended September 30, 1999 and is dependent
upon support from a director and significant shareholder and upon generating
sufficient revenues from existing and soon to be released products in order to
fund operations. In addition, Management has taken steps to reduce costs,
including the sale of its Nova Systems Division, which had incurred losses in
each of the two years in the period ended December 31, 1998. The Company is
assessing its product lines to identify how to enhance existing or create new
distribution channels. The Company is developing and expects to release a next
generation product for its core Video Production segment early in 2000. The
Company believes that its current cash, borrowings from a shareholder, together
with its operating cash flows, will be sufficient to meet the Company's
requirements for working capital and capital expenditures through the end of
1999.
As described in the notes to the consolidated financial statements, the
Company has obtained a $1.0 million asset based line of credit from Venture
Banking Group, a division of Cupertino National Bank, secured by the Company's
assets. Interest on any advances will be calculated at a rate of 1.5% above
prime. The Company is subject to various covenants. The revolving maturity date
of this facility is August 25, 2001. As of the date of this filing, the Company
had not borrowed from this facility.
11
<PAGE>
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company's market risk disclosures pursuant to Item 3 are not material
and are therefore not required.
12
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Effective September 15, 1999, the Company issued a warrant for 95,000 shares
of Common Stock (the "Warrant") to Venture Banking Group, a division of
Cupertino National Bank, in connection with a line of credit provided to the
Company. The Warrant expires on September 15, 2002 and is convertible into
Common Stock at any time prior to such date at an exercise price of $0.65 per
share. The Warrant was issued pursuant to the exemption provided by Section 4(2)
of the Securities Act of 1933, as amended. The holder of shares of Common Stock
issued upon exercise of the Warrant is entitled to registration rights as set
forth in the Holders Rights Agreement.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders on July 15, 1999, the following
persons were elected to the Board of Directors:
Votes
Affirmative --------------------------
Votes Withheld Abstained
----- -------- ---------
Michael L. D'Addio 5,194,468 73,055 0
B. Yeshwant Kamath* 5,190,668 76,855 0
Mark C. Hahn 5,200,468 67,055 0
Carl E. Berg 5,200,268 67,255 0
N. William Jasper, Jr. 5,201,218 66,305 0
* Mr. Kamath the Company's President and Director passed away on July 11, 1999.
As such, the Company will have one vacancy on the Board. This seat will remain
open until such time the present Board of Directors decides to fill the vacancy.
There were 5,267,523 shares of Common Stock represented at the meeting.
The following proposals were approved at the Company's Annual Meeting:
Votes
Affirmative --------------------------
Votes Withheld Abstained
----- -------- ---------
To approve an amendment to
the Company's Restated
Articles of Incorporation to
effect a stock combination
(reverse stock split)
pursuant to which every three
(3) shares of the Company's
outstanding Common Stock
would be exchanged for one
(1) new share of Common
Stock. 5,144,628 107,282 15,613
13
<PAGE>
To ratify the appointment of
PricewaterhouseCoopers L.L.P.
as the independent
accountants of the Company
for the fiscal year ending
December 31, 1999. 5,216,541 38,332 12,650
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Document
----------- -----------------------
4.01 Warrant to Purchase Stock.
4.02 Holder Rights Agreement.
10.15 Loan and Security Agreement.
10.16 Intellectual Property Security Agreement.
10.17 Subordination Agreement.
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1999.
14
<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.
November 12, 1999 VIDEONICS, INC.
- ----------------- --------------------
Date Registrant
By:/s/ Gary L. Williams
--------------------
Gary L. Williams
Vice President of Finance,
Chief Financial Officer and
Assistant Secretary
(Principal Financial and Accounting
Officer and Authorized Signer)
15
<PAGE>
INDEX OF EXHIBITS
Exhibits:
4.01 Warrant to Purchase Stock
4.02 Holder Rights Agreement
10.15 Loan and Security Agreement
10.16 Intellectual Property Security Agreement
10.17 Subordination Agreement
27.1 Financial Data Schedule
16
EXHIBIT 4.01
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Videonics, Inc., a California corporation
Number of Shares: 95,000
Class of Stock: Common
Initial Exercise Price: $0.65
Issue Date: September 15, 1999
Expiration Date: September 15, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, VENTURE BANKING GROUP, a division of CUPERTINO
NATIONAL BANK ("Holder") is entitled to purchase the number of fully paid and
nonassessable shares of Common Stock (the "Shares") of the corporation (the
"Company") at the price per Share (the "Warrant Price") all as set forth herein
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 No Rights of Shareholder. This Warrant does not entitle Holder to any
voting rights as a shareholder of the Company prior to the exercise hereof.
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such
1
<PAGE>
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking or public accounting firm to undertake such valuation. If the
valuation of such investment banking firm is greater than that determined by the
Board of Directors, then all fees and expenses of such investment banking firm
shall be paid by the Company. In all other circumstances, such fees and expenses
shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in the
case of mutilation, or surrender and cancellation of this Warrant, the Company
at its expense shall execute and deliver, in lieu of this Warrant, a new warrant
of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition". For the purpose of this Warrant, "Acquisition" means
any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2 Assumption of Warrant. Upon the closing of any Acquisition the
successor entity shall assume the obligations of this Warrant, and this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3 Purchase Right. Notwithstanding the foregoing, at the election of
Holder, the Company shall purchase the unexercised portion of this Warrant for
cash upon the closing of any Acquisition for an amount equal to (a) the fair
market value of any consideration that would have been received by Holder in
consideration of the Shares had Holder exercised the unexercised portion of this
Warrant immediately before the record date for determining the shareholders
entitled to participate in the proceeds of the Acquisition, less (b) the
aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
then upon exercise of this Warrant, for each Share acquired, Holder shall
receive, without cost to Holder, the total number and kind of securities to
which Holder would have been entitled had Holder owned the Shares of record as
of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have
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received for the Shares if this Warrant had been exercised immediately before
such reclassification, exchange, substitution, or other event. The Company or
its successor shall promptly issue to Holder a new Warrant for such new
securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the
Warrant Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Weighted Average Adjustment. If the Company issues additional common
shares (including shares of common stock ultimately issuable upon conversion of
a security convertible into common stock) after the date of the Warrant and the
consideration per additional common share is less than the Warrant Price in
effect immediately before such issue shall be reduced, concurrently with such
Issue, to a price determined by multiplying the Warrant Price by a fraction:
(a) the numerator of which is the amount of common stock outstanding
immediately before such Issue plus the amount of common stock that the aggregate
consideration received by the Company for the additional common shares would
purchase at the Warrant Price in effect immediately before such Issue, and
(b) the denominator of which is the amount of common stock outstanding
immediately before such issue plus the number of such additional common shares.
Upon each adjustment of the Warrant Price, the number of Shares issuable upon
exercise of the Warrant shall be increased to equal the quotient obtained by
dividing (a) the product resulting from multiplying (i) the number of Shares
issuable upon exercise of the Warrant and (ii) the Warrant Price, in each case
as in effect immediately before such adjustment, by (b) the adjusted Warrant
Price.
2.5 No Impairment. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon exercise
or conversion of the Warrant and the number of Shares to be issued shall be
rounded down to the nearest whole Share. If a fractional share interest arises
upon any exercise or conversion of the Warrant, the Company shall eliminate such
fractional share interest by paying Holder amount computed by multiplying the
fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief
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Financial Officer setting forth such adjustment and the facts upon which such
adjustment is based. The Company shall, upon written request, furnish Holder a
certificate setting forth the Warrant Price in effect upon the date thereof and
the series of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. The Company shall at all
times reserve a sufficient number of shares of common stock for issuance upon
Holder's exercise of its rights hereunder.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as the Holder holds this Warrant and/or any
of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual financial statements of the Company.
3.4 Registration Under Securities Act of 1933, as amended. The Company
hereby grants to Holder the registration rights described in that certain
Videonics, Inc. Holder Rights Agreement between Holder and Company dated as of
September 15, 1999 (the "Securityholders Agreement"). The Shares shall be
Registrable Securities, as such term is defined in the Securityholders
Agreement, and will be given such rights and priority as set forth in the
Securityholders Agreement.
3.5 Market Stand-Off Agreement. Holder hereby agrees that, for a period of
no more than six months following the effective date of the first registration
statement of the Company covering common stock (or other securities) to be sold
on behalf of the Company in an underwritten public offering, it will not, to the
extent requested by the Company and any underwriter, sell or otherwise transfer
or dispose of (other than to donees or transferees who agree to be similarly
bound) any of the Shares at any time during such period except common stock
included in such registration, provided, that all officers and directors of the
Company who hold securities of the Company or options to acquire securities of
the Company,
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holders of more than 5% of the Company's common stock, and all other persons
with registration rights enter into similar agreements.
ARTICLE 4. MISCELLANEOUS.
4.1 Term. This Warrant is exercisable, in whole or in part, at any time and
from time to time on or before the Expiration Date set forth above.
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
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4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
VIDEONICS, INC.
By: /s/ Gary Williams
-----------------
Title: V.P. of Finance & CFO
---------------------
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APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Common Stock of __________________________ pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _____________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
--------------------------------------------------
(Name)
--------------------------------------------------
--------------------------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
-------------------------------------------------------
(Signature)
- ------------------------------------
(Date)
7
EXHIBIT 4.02
VIDEONICS, INC.
HOLDER RIGHTS AGREEMENT
THIS VIDEONICS, INC. HOLDER RIGHTS AGREEMENT (this "Agreement") is
entered into as of September 15, 1999 by and among Videonics, Inc., a California
corporation (the "Company"), and the Venture Banking Group, a division of
Cupertino National Bank ("Holder") pursuant to the LOAN AND SECURITY AGREEMENT
dated August 25, 1999 (the "Loan Agreement"). Collectively, the Holder and the
Company are referred to herein as the parties and they are the only parties
hereto.
1. Registration Rights.
1.01 Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Common Stock" means the Company's Common Stock.
(d) "Form S-3" means such form under the 1933 Act as in effect
on the date hereof or any registration form under the 1933 Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(e) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act, and the
declaration or ordering of the effectiveness of such registration statement or
document by the SEC.
(f) The term "Registrable Securities" means: (i) the Common
Stock of the Company issued or issuable upon exercise of the Warrant; and (ii)
any Common Stock of the Company issued (or issuable upon the exercise of the
Warrant) by way of a stock split, stock dividend, recapitalization, merger or
other distribution with respect to, or in exchange for, or in replacement of,
Common Stock issuable upon the exercise of the Warrant.
(g) The number of shares of "Registrable Securities then
outstanding" shall be the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable securities which are, Registrable Securities.
(h) "Equity securities" shall mean any of the Company's
securities.
(i) The Term "Warrant" means that certain warrant for 95,000
shares of the Company's common stock being issued to the Holder pursuant to the
Loan Agreement.
<PAGE>
1.02 Form S-3 Registration. The Company will use its best commercial
efforts to effect a registration on Form S-3 (or any similar successor form) and
any related qualification or compliance with respect to all the Registrable
Securities owned by the Holder so that such registration will be effective on or
before March 15, 2000; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to this Section: (i) if the Company is not qualified as a registrant entitled to
use Form S-3 (or the applicable successor form); (ii) if the Company shall
furnish to the Holder a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than one hundred twenty (120) days after the
date of the certificate; provided, however, that the Company shall not utilize
this right more than once in any twelve (12) month period; or (iii) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
After filing the Form S-3, the Company shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(b) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as it may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by it.
(c) Use its best commercial efforts to register and qualify
the securities covered by such registration statement under the securities laws
of such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction, and further provided that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by the selling Holder, to the extent required by such
jurisdiction if such Holder does not elect to withdraw from the registration
after notice of such requirement.
(d) Notify the Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein
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not misleading in light of the circumstances then existing. In such instance,
Company shall use its best efforts to cure any such statement or omission so as
to render such statement or omission not misleading.
1.03 Furnish Information. In connection with any action pursuant to
this Section 1, the Holder shall furnish to the Company such information
regarding itself, its Registrable Securities, and the intended method of
disposition of such securities as shall be required to effect the registration
of the Registrable Securities. In that connection, the Holder shall be required
to represent to the Company that all such information which is given is both
complete and accurate in all material respects when made.
1.04 Expenses of Registration.
(a) All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 1.02 shall be
borne by the Company. All Selling Expenses shall be borne by the Holder.
(b) Definitions: "Registration Expenses" shall mean all
expenses incurred by the Company in complying with Section 1.02 hereof,
including, without limitation, all registration, filing and qualification fees,
underwriters' expense allowances, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses. "Selling Expenses" shall
mean all underwriting discounts and selling commissions applicable to the sale
of the Registrable Securities in the registration, all fees and disbursements of
any special counsel (other than the Company's regular counsel) for the Holder.
1.05 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, the officers, directors and partners of the
Holder, any underwriter (as defined in the 1933 Act) for the Holder and each
person, if any, who controls the Holder or underwriter within the meaning of the
1933 Act or the 1934 Act, against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the 1933 Act, the 1934
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state securities
law; and the Company will reimburse the Holder, officer, director or partner,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
Company's indemnity contained in this Section 1.05(a) shall not apply to
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amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished in writing and expressly stated
for use in connection with such registration by the Holder, or the Holder's
officers, directors or partners, underwriter, or controlling person. The Company
shall not be required to indemnify any person against any liability arising (i)
from any untrue or misleading statement or omission contained in any preliminary
prospectus if such deficiency is corrected in the final prospectus or (ii) out
of the failure of any person to deliver a prospectus as required by the 1933
Act. The indemnity provided for in this Section 1.05(a) shall remain in full
force and effect regardless of any investigation made by or on behalf of such
seller, underwriter, participating person or controlling person and shall
survive transfer of such securities by such seller.
(b) To the extent permitted by law, the selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the 1933 Act, any underwriter (within
the meaning of the 1933 Act) for the Company, any person who controls such
underwriter, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
1933 Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by the Holder expressly stated in a writing for
use in connection with such registration; and the Holder will reimburse any
legal or other expenses, as incurred, where same are reasonably incurred by any
person intended to be indemnified pursuant to this Section 1.05(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 1.05(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, the liability of the Holder under this
Section 1.05(b) shall be limited to an amount equal to the proceeds from the
public offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.05 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.05, notify the
indemnifying party in writing of the commencement thereof, and the indemnifying
party shall have the right to participate in and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the reasonable fees and expenses to be paid by the
indemnifying party if the indemnified party reasonably determines that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party within a
reasonable time of the commencement of any
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such action, to the extent prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 1.05, but the omission so to notify the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.05.
(d) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any
indemnified party makes a claim under this Section 1.05 or any controlling
person of such indemnified party makes such a claim but is judicially determined
(by entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 1.05 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of any such person
seeking indemnity under the terms of this Section 1.05; then, and in each such
case, the Company and such person will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after contribution
from others) in such proportion so that such person is responsible for the
portion represented by the percentage that the public offering price of the
Registrable Securities offered by the registration statement bears to the public
offering price of all securities offered by such registration statement, and the
Company is responsible for the remaining portion; provided, however, that, in
any such case, (A) no such person shall be required to contribute any amount in
excess of the amount of the proceeds received by it in such offering; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
1.06 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holder the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the SEC that may at any time permit
the Holder to sell securities of the Company to the public without registration,
the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all times;
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the 1933
Act and the 1934 Act; and
(c) furnish to the Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request: (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), or that it qualifies as a registrant whose securities
may be resold pursuant to Form S-3 (at any time after it so qualifies); (ii) a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company; and (iii) such other information
as may be reasonably requested in order to permit the Holder to avail itself of
any rule or regulation of the SEC or any state securities authority which
permits the selling of any such securities without registration or pursuant to
such form.
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2. General Provisions.
2.01 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to better evidence and reflect the transactions described herein
and contemplated hereby, and to effect the intent and purpose of this Agreement.
2.02 Rights Cumulative. Each and all of the various rights, powers and
remedies of the parties hereto shall be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have at
law or in equity in the event of the breach of any of the terms of this
Agreement. The exercise or partial exercise of any right, power or remedy shall
neither constitute the exclusive election thereof nor the waiver of any other
right, power or remedy available to such party.
2.03 Pronouns. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
2.04 Notices. All notices, consents or demands of any kind which any
party to this Agreement may be required or may desire to serve on any other
party hereto in connection with this Agreement shall be in writing and may be
delivered by personal service or overnight delivery, by telex or facsimile
transfer addressed to the address on the signature page of this Agreement.
Service of any such notice or demand shall be deemed complete on the date of
actual delivery or at the expiration of the fourth (4th) business day after the
date sent, whichever is earlier in time. Any party hereto may from time to time
by notice in writing served upon the others as aforesaid, designate a different
mailing address or a different person to which such notices or demands are
thereafter to be addressed or delivered. Facsimile transmissions shall be
followed up by personal or overnight delivery and shall not be effective unless
receipt confirmation has been acknowledged.
2.05 Captions. Captions are provided herein for convenience only and
they form no part of this Agreement and are not to serve as a basis for
interpretation or construction of this Agreement, nor as evidence of the
intention of the parties hereto.
2.06 Severability. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions of this
Agreement with valid and enforceable provisions which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
2.07 Attorneys' Fees. In any action at law or in equity to enforce any
of the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the
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court in a final judgment or decree, shall pay the successful party all
reasonable costs, expenses and attorneys' fees incurred by the successful party
(including, without limitation, costs, expenses and fees on any appeal) with
respect to such action.
2.08 Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original, and when executed,
separately or together, shall constitute a single original instrument, effective
in the same manner as if the parties hereto had executed one and the same
instrument.
2.09 Waiver. Any party hereto may, as to itself, by a writing signed by
an authorized representative of such party: (i) extend the time for the
performance of any of the obligations of another party; (ii) waive any
inaccuracies in representations and warranties made by another party contained
in this Agreement or in any documents delivered pursuant hereto; (iii) waive
compliance by another party with any of the covenants contained in this
Agreement or the performance of any obligations of such other party; or (iv)
waive the fulfillment of any condition that is precedent to the performance by
such party of any of its obligations under this Agreement. No waiver of any
term, provision or condition of this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be, or be construed as, a
further or continuing waiver of any such term, provision or condition or as a
waiver of any other term, provision or condition of this Agreement.
2.10 Entire Agreement. This Agreement (together with its Exhibits and
the other documents referred to herein) is intended by the parties hereto to be
the final expression of their agreement and constitutes and embodies the entire
agreement and understanding of the parties with regard to the subject matter
hereof and is a complete and exclusive statement of the terms and conditions
thereof, and shall supersede any and all prior correspondence, conversations,
negotiations, agreements or understandings relating to the same subject.
2.11 Choice of Law. It is the intention of the parties that the
internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties.
2.12 Binding on Heirs, Successors and Assigns; Assignment of Specific
Rights.
(a) This Agreement and all of its terms, conditions and
covenants are intended to be fully effective and binding, to the extent
permitted by law, on the heirs, executors, administrators, successors and
permitted assigns of the parties hereto.
(b) The rights held by the Holder under Section 1 of this
Agreement shall not be assignable.
2.13 Survival. The respective representations and warranties given by
each of the parties, as contained herein shall survive without regard to any
investigation made by any party. All statements as to factual matters contained
in any certificates, exhibits or other instruments delivered by or on behalf of
any party pursuant to the terms hereto or in connection with the transactions
contemplated hereby shall be deemed, for all purposes, to constitute
representations
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and warranties by such party under the terms of this Agreement given as of the
date of such certificate or instrument.
2.14 Amendment. Any provision of this Agreement may be amended or the
observance thereof may be waived upon the written consent of the Company and the
Holder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
with the intent and agreement that the same shall be effective as of the day and
year first above written.
THE COMPANY: Videonics, Inc.
By: /s/ Gary Williams
-----------------------------------
Name: Gary Williams
---------------------------------
Title: V.P. Finance and CFO
--------------------------------
Address: ___________________________
___________________________
HOLDER: Venture Banking Group
By: /s/ Jason Hartmann
-----------------------------------
Name: Jason Hartmann
---------------------------------
Title: Commercial Loan Officer
--------------------------------
Address: ___________________________
___________________________
8
EXHIBIT 10.15
This LOAN AND SECURITY AGREEMENT is entered into as of August 25, 1999, by and
between VENTURE BANKING GROUP, a division of Cupertino National Bank ("Bank")
and VIDEONICS, INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a cash advance or cash advances
under the Revolving Facility.
"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; reasonable Collateral audit fees; and Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents (including fees and expenses of appeal), incurred before, during and
after an Insolvency Proceeding, 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.
"Borrowing Base" means an amount equal to seventy-five percent
(80%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
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"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto.
"Committed Revolving Line" means a credit extension of up to
One Million Dollars ($1,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance or any other extension
of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendible at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination.
"Daily Balance" means the amount of the Obligations owed at
the end of a given day.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank as a
consequence of any Collateral audits done pursuant to Section 6.3 in Bank's
reasonable judgment and upon
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notification thereof to Borrower in accordance with the provisions hereof.
Unless otherwise agreed to by Bank, Eligible Accounts shall not include the
following:
(a) Accounts that the account debtor has failed to
pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor,
thirty percent (30%) of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date;
(c) Accounts with respect to which the account debtor
is an officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed
on consignment, guaranteed sale, sale or return, sale on approval, bill and
hold, or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor
is an Affiliate of Borrower;
(f) Accounts with respect to which the account debtor
does not have its principal place of business in the United States, with the
exception of those Accounts which are backed by either letters of credit or
foreign credit insurance;
(g) Accounts with respect to which the account debtor
is the United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable
to the account debtor for goods sold or services rendered by the account debtor
to Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor,
including Subsidiaries and Affiliates, whose total obligations to Borrower
exceed twenty percent (20%) of all Accounts, to the extent such obligations
exceed the aforementioned percentage, except as approved in writing by Bank;
(j) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(k) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
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"Indebtedness" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means all of Borrower's
right, title and interest in and to the following:
(a) Copyrights, Trademarks 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 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.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
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"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.
"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) Indebtedness secured by a lien described in
clause (c) of the defined term "Permitted Liens," provided such Indebtedness
does not exceed the lesser of the cost or fair market value of the equipment
financed with such Indebtedness; and
(d) Subordinated Debt.
"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 rating of at least A-2 or P-2 from either
Standard & Poor's Corporation or Moody's Investors Service, (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank and (iv) Bank's money market accounts.
"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;
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(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 acquired or
held by Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment; and
(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 published in the Western Edition of The Wall Street Journal, as
the "prime rate," whether or not such rate is the lowest rate available from
Bank.
"Quick Assets" means, at any date as of which the amount
thereof shall be determined, the unrestricted cash and cash-equivalents,
accounts receivable and investments with maturities not to exceed 90 days, of
Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial Officer and the
Controller of Borrower.
"Revolving Facility" means the facility under which Borrower
may request Bank to issue Advances, as specified in Section 2.1.1 hereof.
"Revolving Maturity Date" means August 25, 2001.
"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 reasonably
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, at the time as of which any determination is
being made, is 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 sum of the capital stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of Borrower and
its Subsidiaries minus intangible assets, plus Subordinated Debt, on a
consolidated basis determined in accordance with GAAP.
"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 Credit Extensions.
Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 Revolving Facility.
(a) Subject to and upon the terms and conditions of
this Agreement, Borrower may request Advances in an aggregate outstanding amount
not to exceed the lesser of (i) the Borrowing Base or (ii) the Committed
Revolving Line. Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1.1 may be repaid and reborrowed at any time
prior to the Revolving Maturity Date, at which time all Advances under this
Section 2.1.1 shall be immediately due and payable. Borrower may prepay any
Advances without penalty or premium.
(b) Whenever Borrower desires an Advance, Borrower
will notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1.1 to
Borrower's deposit account.
(c) Interest hereunder shall be due and payable on
the twenty-fifth (25th) calendar day 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
Revolving 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 shall thereafter accrue
interest at the rate then applicable hereunder.
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2.2 Overadvances. If at any time the aggregate amount of the Advances
exceeds the lesser of (i) the Borrowing Base or (ii) the Committed Revolving
Line, Borrower shall immediately pay to Bank, in cash, the amount of such
excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. Except as set forth in Section
2.3(b), the Advances shall bear interest, on the outstanding daily balance
thereof, at a rate equal to one and one-half percent (1.50%) above the Prime
Rate.
(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence and during the continuance 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) 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 the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment 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) Facility Fee. On the Closing Date, a Facility Fee
equal to Three Thousand Seven Hundred Fifty Dollars ($3,750), which shall be
nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents; and
(c) Bank Expenses. On the Closing Date, all Bank
Expenses incurred through the Closing Date, including reasonable attorneys' fees
and expenses and, after the Closing Date, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
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2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments
of principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
the Obligations, 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 Revolving Maturity Date. Notwithstanding the foregoing, Bank shall
have the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) an intellectual property security agreement;
(c) no later than September 15, 1999, a warrant to
purchase stock;
(d) a subordination agreement in form and substance
acceptable to Bank for the One Million Dollars ($1,000,000) which represent the
director loan;
(e) such documents required to effect the transfer of
ownership and proceeds of Borrower's existing lockbox from Wells Fargo Bank to
Bank.
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(f) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and delivery of
this Agreement;
(g) a promissory note evidencing Borrower's
indebtedness to Bank under this Agreement in substantially the form of Exhibit
E;
(h) financing statement (Form UCC-1);
(i) insurance certificate;
(j) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof;
(k) an accounts receivable audit, the results of
which shall be satisfactory to Bank; and
(l) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would exist after giving effect to
such Credit Extension (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). The making of each Credit
Extension shall be deemed to be a representation and warranty by Borrower on the
date of such Credit Extension as to the accuracy of the facts referred to in
this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt 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.
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
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inspect Borrower's Books and to make copies thereof and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is
a corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has not received notice of actual or imminent Insolvency Proceeding of
any account debtor that is included in any Borrowing Base Certificate as an
Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects
of good and marketable quality, free from all material defects.
5.6 Intellectual Property Collateral. 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.
5.7 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. 5.8 Litigation.
5.8 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.
5.9 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
are delivered by Borrower to Bank fairly
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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.
5.10 Solvency, Payment of Debts. Borrower is solvent and able to pay
its debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary have 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 T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.12 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.13 Taxes. Borrower and each Subsidiary have filed or caused to be
filed all tax returns required to be filed, and have paid, or have made adequate
provision for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 Government Consents. Borrower and each Subsidiary have obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.16 Year 2000. Borrower and its Subsidiaries have reviewed the areas
within their operations and business which could be adversely affected by, and
have developed or are
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developing a program to address on a timely basis, the Year 2000 Problem and
have made related appropriate inquiry of material suppliers and vendors, and
based on such review and program, the Year 2000 Problem will not have a Material
Adverse Effect upon its financial condition, operations or business as now
conducted. "Year 2000 Problem" means the possibility that any computer
applications or equipment used by Borrower may be unable to recognize and
properly perform date sensitive functions involving certain dates prior to and
any dates on or after December 31, 1999.
5.17 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver
to Bank: (a) as soon as available, but in any event within twenty (20) days
after the end of each calendar month, a company prepared consolidated balance
sheet and income statement covering Borrower's consolidated operations during
such period, in a form acceptable to Bank and 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)
if applicable, 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 Forms 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 Fifty Thousand Dollars ($50,000) or more; (e) such budgets, sales
projections, operating plans or other financial information as Bank may
reasonably request from time to time generally prepared by Borrower in the
ordinary course of business; and (f) within twenty-five (25) days of the last
day of each fiscal quarter, a report signed by Borrower, in form reasonably
acceptable to Bank, listing any
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applications or registrations that Borrower has made or filed in respect of any
Patents, Copyrights or Trademarks and the status of any outstanding applications
or registrations, as well as any material change in Borrower's intellectual
property, including but not limited to any subsequent ownership right of
Borrower in or to any Trademark, Patent or Copyright not specified in Exhibits
A, B, and C of the Intellectual Property Security Agreement delivered to Bank by
Borrower in connection with this Agreement.
Within twenty (20) days after the last day of each month, Borrower shall deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable.
Borrower shall deliver to Bank with the monthly and quarterly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's Accounts
and appraise Collateral at Borrower's expense, provided that such audits will be
conducted no more often than every six (6) months unless an Event of Default has
occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is 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
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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 Year 2000 Compliance. Borrower shall perform all acts reasonably
necessary to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors that are
material to Borrower's business, become Year 2000 Compliant in a timely manner.
Such acts shall include, without limitation, performing a comprehensive review
and assessment of all Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems. As
used in this paragraph, "Year 2000 Compliant" shall mean, in regard to any
entity, that all software, hardware, firmware, equipment, goods or systems
utilized by or material to the business operations or financial condition of
such entity, will properly perform date sensitive functions before, during and
after the year 2000. Borrower shall immediately upon request, provide to Bank
such certifications or other evidence of Borrower's compliance with the terms of
this paragraph as Bank may from time to time require.
6.8 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.9 Current Ratio. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Current Assets to Current Liabilities of at least
1.75 to 1.00.
6.10 Tangible Net Worth. Borrower shall maintain, as of the last day of
each calendar month, a Tangible Net Worth of not less than Two Million Five
Hundred Thousand Dollars ($2,500,000) plus fifty percent (50%) of Borrower's
quarterly net profits after tax.
6.11 Profitability. Borrower shall show a profit of at least One Dollar
($1.00) for each fiscal quarter, commencing with the quarter ending March 31,
2000.
6.12 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered
on an expedited basis (to the extent not already registered) with the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable: (i) 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, (ii) all registerable intellectual property rights Borrower has
developed as of the date of this Agreement but heretofore failed to register,
within thirty (30) days of the date of this Agreement, and (iii) 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, and prior to Borrower's use of such product
(including without limitation major revisions or additions to the intellectual
property rights listed on such Exhibits A, B and C). Borrower shall give Bank
notice of all such applications or registrations.
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(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 material 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.
(d) Bank may audit Borrower's Intellectual Property
Collateral to confirm compliance with this Section 6.13, provided such audit may
not occur more often than once per year, unless an Event of Default has occurred
and is continuing. 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 6.13 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 6.13.
6.13 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
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 Credit
Extensions, 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 (including Intellectual Property)
without Bank's prior written consent, which shall not be unreasonably withheld,
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 surplus,
worn-out or obsolete Equipment.
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.
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7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
with respect to any of its property (including Intellectual Property
Collateral), or assign or otherwise convey any right to receive income,
including the sale of any Accounts, or permit any of its Subsidiaries so to do,
except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, except that Borrower may make distributions to its Parent in an aggregate
amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate in any given year.
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory and Equipment. Store the Inventory or the Equipment with
a bailee, warehouseman, or similar party unless Bank has received a pledge of
the warehouse receipt covering such Inventory; provided, however, that Borrower
may deposit software code in escrow for customers in the ordinary course of
business. 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 and Equipment only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or be 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 Credit Extension 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.
7.12 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.
8. EVENTS OF DEFAULT
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Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation under
Article 6 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 Credit Extensions 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 Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within ten (10) days (provided
that no Credit Extensions will be made prior to the dismissal of such Insolvency
Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000) or
that could have a Material Adverse Effect;
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8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate 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) Make such payments and do such acts as Bank
considers necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and
to make the Collateral available to Bank as Bank may designate. Borrower
authorizes Bank to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower's 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) 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,
19
<PAGE>
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) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower's policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; (g)
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 Exhibits A, B, and 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 to
have any right, title or interest; (h) 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 (i) to transfer the Intellectual Property Collateral into the name of Bank
or a third party to the extent permitted under the California Uniform Commercial
Code; provided Bank may exercise such power of attorney to sign the name of
Borrower on any of the documents described in Section 4.2 regardless of whether
an Event of Default has occurred. The appointment of Bank as Borrower's attorney
in fact, and each and every one of Bank's rights and powers, being coupled with
an interest, is irrevocable until all of the Obligations have been fully repaid
and performed and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time during the term 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.
20
<PAGE>
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 after
reasonable notice to Borrower: (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.
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:
21
<PAGE>
If to Borrower: Videonics, Inc.
1370 Dell Avenue
Campbell, CA 95008
Attn: Gary Williams
FAX: (408) 866-1748
If to Bank: Venture Banking Group,
a division of Cupertino National Bank
Three Palo Alto Square, Suite 150
Palo Alto, CA 94306
Attn: Jason Hartmann
FAX: (650) 843-6969
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
This Agreement 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 this Agreement; 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 this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
22
<PAGE>
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated 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.
12.8 Confidentiality. In handling any confidential information Bank and
all employees and agents of Bank, including but not limited to accountants,
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
VIDEONICS, INC.
By: /s/ Gary Williams
------------------------------------
Title: V.P. Finance and CFO
---------------------------------
VENTURE BANKING GROUP,
a division of Cupertino National Bank
By: /s/ Jason Hartmann
------------------------------------
Title: Commercial Loan Officer
---------------------------------
24
<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, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, 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, securities
accounts, security entitlements, financial assets, investment property, letters
of credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; 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.
25
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., PACIFIC TIME
TO: VENTURE BANKING GROUP DATE:___________________________________
FAX #: (650) 843-6969 TIME:___________________________________
- --------------------------------------------------------------------------------
FROM: Videonics, Inc.
----------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY: _______________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: _______________________________________________________
PHONE NUMBER: _______________________________________________________________
FROM ACCOUNT # ________________ TO ACCOUNT # ______________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $_______________________________
PRINCIPAL PAYMENT (ONLY) $_______________________________
INTEREST PAYMENT (ONLY) $_______________________________
PRINCIPAL AND INTEREST (PAYMENT) $_______________________________
OTHER INSTRUCTIONS: _________________________________________________________
_____________________________________________________________________________
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as
of the date of the telephone request for and Advance confirmed by this
Payment / Advance Form; 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 REQUEST:
------------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
------------------------------------ -----------------------------------
Authorized Requester Phone #
------------------------------------ -----------------------------------
Authorized Requester Phone #
---------------------------------------------
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
26
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower: Videonics, Inc.
Lender: Venture Banking Group, a division of Cupertino National Bank
Commitment Amount: $1,000,000
- --------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ___ $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 30% over 90 day accounts $___________
6. Concentration Limits
7. Foreign Accounts not backed by letters of credit or
foreign credit insurance $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
14. Eligible Accounts (#3 minus #13) $___________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $___________
BALANCES
16. Maximum Loan Amount $1,000,000
17. Total Funds Available [Lesser of #16 or #15] $___________
18. Present balance owing on Line of Credit $___________
19. RESERVE POSITION (#17 minus #18) $___________
27
<PAGE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Venture Banking Group, a division
of Cupertino National Bank.
VIDEONICS, INC.
By:__________________________________________
Authorized Signer
28
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: VENTURE BANKING GROUP
FROM: VIDEONICS, INC.
The undersigned authorized officer of Videonics, 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.
<TABLE>
Please indicate compliance status by circling Yes/No under "Complies" column.
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 20 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R and A/P Agings, Borrowing Base Cert. Monthly within 20 days Yes No
A/R Audit Initial and Semi-annual Yes No
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
On a monthly basis for Borrower:
Current Ratio 1.75:1.00 _____:1.0 Yes No
Minimum TNW* $________ $________ Yes No
Profitability (quarterly) ** $1.00 $________ Yes No
<FN>
* $2,500,000 plus 50% of quarterly NPAT.
** Commencing with quarter ending March 31, 2000.
</FN>
</TABLE>
Comments Regarding Exceptions: See Attached
----------------------------------------
Sincerely, BANK USE ONLY
___________________________________ Received By:_________________________
SIGNATURE AUTHORIZED SIGNER
___________________________________ Date:________________________________
TITLE
Verified:____________________________
___________________________________ AUTHORIZED SIGNER
DATE
Date:________________________________
Compliance Status: Yes No
----------------------------------------
29
<PAGE>
EXHIBIT E
REVOLVING PROMISSORY NOTE
$1,000,000 Palo Alto, California
August 25, 1999
VIDEONICS, INC. ("Borrower"), for value received, hereby promises to pay to the
order of VENTURE BANKING GROUP, a division of Cupertino National Bank ("Bank"),
in lawful money of the United States of America, pursuant to that certain Loan
and Security Agreement dated as of the date hereof, by and between Borrower and
Bank (the "Loan Agreement"), (i) the principal amount of One Million Dollars
($1,000,000), or, if lesser, (ii) the aggregate principal amount of all Advances
(the "Revolving Advances") outstanding as of the maturity date hereof.
This Note is the Note referred to in the Loan Agreement. All terms defined in
the Loan Agreement shall have the same definitions when used herein, unless
otherwise defined herein.
Borrower further promises to pay interest on each Revolving Advance hereunder in
like funds on the principal amount hereof from time to time outstanding from the
date hereof until paid in full, at a rate or rates per annum and payable on the
dates determined pursuant to the Loan Agreement.
Payment on this Note shall be applied in the manner set forth in the Loan
Agreement. The Loan Agreement contains provisions for acceleration of the
maturity of Revolving Advances hereunder upon the occurrence of certain stated
events and also provides for optional and mandatory prepayments of principal
hereof prior to any stated maturity upon the terms and conditions therein
specified.
All Revolving Advances made by Bank to Borrower pursuant to the Loan Agreement
shall be recorded by Bank on the books and records of Bank. The failure of Bank
to record any Revolving Advance or any prepayment or payment made on account of
the principal balance hereof shall not limit or otherwise affect the obligation
of Borrower under this Note and under the Loan Agreement to pay the principal,
interest and other amounts due and payable under the Revolving Advances.
Any principal or interest payments on this Note not paid when due, whether at
stated maturity, by acceleration or otherwise, shall bear interest at the
Default Rate. Upon the occurrence of a default hereunder or an Event of Default
under the Loan Agreement, all unpaid principal, accrued interest and other
amounts owing hereunder shall, at the option of Bank, be immediately collectible
by or on behalf of Bank pursuant to the Loan Agreement and applicable law.
Except as otherwise provided in the Loan Agreement, Borrower waives presentment
and demand for payment, notice of dishonor, protest and notice of protest of
this Note, and shall pay all costs of collection when incurred, including
reasonable attorneys' fees, costs and expenses. The right to plead any and all
statutes of limitations as a defense to any demand hereunder is hereby waived to
the full extent permitted by law.
The amount of this Note is secured by the Collateral identified and described as
security therefor in the Loan Agreement. This Note shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
excluding conflict of laws principles that would cause the application of the
laws of any other jurisdiction. The provisions of this Note shall inure to the
benefit of and be binding upon any successor to Borrower and shall extend to any
holder hereof.
VIDEONICS, INC.
By: ____________________________________
Title: _________________________________
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: VIDEONICS, INC.
================================================================================
LOAN TYPE. This is a variable rate, line of credit of a principal amount up to
$1,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: to support growth in
trading assets.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
Revolving Line
--------------
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:
$3,750 Loan Fee
$ Accounts Receivables Audit
$ UCC Search Fees
$ UCC Filing Fees
$ Patent Filing Fees
$ Trademark Filing Fees
$ Copyright Filing Fees
$ 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 AUGUST 25, 1999.
VIDEONICS, INC.
/s/ Gary Williams
- -------------------
Authorized Officer
================================================================================
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
Grantor: Videonics, Inc. Bank: Venture Banking Group
================================================================================
INSURANCE REQUIREMENTS. The undersigned ("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 cancelled 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 the Closing Date, 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
Amended and Restated 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 AUGUST 25, 1999.
Videonics, Inc.
X /s/ Gary Williams
------------------
Authorized Officer
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: _________________________ PHONE: _________________________
AGENT'S NAME:_________________________________________________________________
INSURANCE COMPANY: ___________________________________________________________
<PAGE>
POLICY NUMBER: _______________________________________________________________
EFFECTIVE DATES: _____________________________________________________________
COMMENTS: ____________________________________________________________________
================================================================================
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
================================================================================
Borrower: VIDEONICS, INC.
================================================================================
I, the undersigned Secretary or Assistant Secretary of Videonics, Inc. (the
"Corporation"), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of Calfornia.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Articles 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:
Name POSITIONS ACTUAL SIGNATURES
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acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
Borrow Money. To borrow from time to time from Venture Banking Group, a division
of Cupertino National 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 August 25,
1999 (as amended or modified from time to time the "Loan Agreement").
Execute Notes. To execute and deliver to Bank the promissory note or notes of
the Corporation, on Bank's forms, at such rates of interest and on such terms as
may be agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Bank (the "Notes"), and also to execute and deliver to
Bank one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the Notes.
Execute Loan Documents. To execute and deliver to Bank the Loan Agreement and
any other agreement entered into between Borrower and Bank in connection with
the Loan Agreement, all as amended or extended from time to time (collectively,
with the Loan Agreement and the Notes, the "Loan Documents"), and also to
execute and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for the Loan Documents, or any
portion thereof.
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Grant Security. To grant a security interest to Bank in the Collateral described
in the Loan Documents, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Documents.
Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to the Corporation or in which the Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be credited
to the account of the Corporation with Bank, or to cause such other disposition
of the proceeds derived therefrom as they may deem advisable.
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 August 25, 1999 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X /s/ Gary Williams
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REVOLVING PROMISSORY NOTE
$1,000,000 Palo Alto, California
Date: August 25, 1999
VIDEONICS, INC. ("Borrower"), for value received, hereby promises to pay to the
order of VENTURE BANKING GROUP, a division of Cupertino National Bank ("Bank"),
in lawful money of the United States of America, pursuant to that certain Loan
and Security Agreement dated as of the date hereof, by and between Borrower and
Bank (the "Loan Agreement"), (i) the principal amount of Seven Hundred Fifty
Thousand Dollars ($1,000,000), or, if lesser, (ii) the aggregate principal
amount of all Advances (the "Revolving Advances") outstanding as of the maturity
date hereof.
This Note is the Note referred to in the Loan Agreement. All terms defined in
the Loan Agreement shall have the same definitions when used herein, unless
otherwise defined herein.
Borrower further promises to pay interest on each Revolving Advance hereunder in
like funds on the principal amount hereof from time to time outstanding from the
date hereof until paid in full, at a rate or rates per annum and payable on the
dates determined pursuant to the Loan Agreement.
Payment on this Note shall be applied in the manner set forth in the Loan
Agreement. The Loan Agreement contains provisions for acceleration of the
maturity of Revolving Advances hereunder upon the occurrence of certain stated
events and also provides for optional and mandatory prepayments of principal
hereof prior to any stated maturity upon the terms and conditions therein
specified.
All Revolving Advances made by Bank to Borrower pursuant to the Loan Agreement
shall be recorded by Bank on the books and records of Bank. The failure of Bank
to record any Revolving Advance or any prepayment or payment made on account of
the principal balance hereof shall not limit or otherwise affect the obligation
of Borrower under this Note and under the Loan Agreement to pay the principal,
interest and other amounts due and payable under the Revolving Advances.
Any principal or interest payments on this Note not paid when due, whether at
stated maturity, by acceleration or otherwise, shall bear interest at the
Default Rate. Upon the occurrence of a default hereunder or an Event of Default
under the Loan Agreement, all unpaid principal, accrued interest and other
amounts owing hereunder shall, at the option of Bank, be immediately collectible
by or on behalf of Bank pursuant to the Loan Agreement and applicable law.
Except as otherwise provided in the Loan Agreement, Borrower waives presentment
and demand for payment, notice of dishonor, protest and notice of protest of
this Note, and shall pay all costs of collection when incurred, including
reasonable attorneys' fees, costs and expenses. The right to plead any and all
statutes of limitations as a defense to any demand hereunder is hereby waived to
the full extent permitted by law.
The amount of this Note is secured by the Collateral identified and described as
security therefor in the Loan Agreement. This Note shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
excluding conflict of laws principles that would cause the application of the
laws of any other jurisdiction. The provisions of this Note shall inure to the
benefit of and be binding upon any successor to Borrower and shall extend to any
holder hereof.
VIDEONICS, INC.
By: /s/ Gary Williams
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Title: V.P. Finance and CFO
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EXHIBIT 10.16
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is made as of August 25,
1999, by and between Videonics, Inc. ("Borrower"), and Venture Banking Group, a
division of Cupertino National Bank ("Bank").
RECITALS
A. Bank has agreed to lend to Borrower certain funds (the "Loan"), and
Borrower desires to borrow such funds from Bank pursuant to the terms of a Loan
Agreement of even date herewith (collectively, the "Loan Agreement").
B. In order to induce Bank to make the Loan, Borrower has agreed to
grant a first priority security interest in certain intangible property to
Lender for purposes of securing the obligations of Borrower to Bank.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance of all of Borrower's present or future
indebtedness, obligations and liabilities to Bank, Borrower hereby assigns,
transfers, conveys and grants a first priority security interest to Bank, as
security, in and to Borrower's entire right, title and interest in, to and under
the following (all of which shall collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof that is created by Borrower, whether published or
unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held, including without limitation
those set forth on Exhibit A attached hereto (collectively, the "Copyrights");
(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) All patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and
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continuations-in-part of the same, including without limitation the patents and
patent applications set forth on Exhibit B attached hereto (collectively, the
"Patents");
(e) 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, including without limitation those set forth
on Exhibit C attached hereto (collectively, the "Trademarks");
(f) Right to the proceeds (excluding attorneys' and other
professional and expert fees and expenses) arising from 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 on behalf of and
collect such damages for said use or infringement of the intellectual property
rights identified above;
(g) 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 or applicable law; and
(h) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) 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.
2. Authorization and Request. Borrower authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this security agreement.
3. Covenants and Warranties. Borrower represents, warrants, covenants
and agrees as follows:
(a) Borrower is now the sole owner of the Collateral, except
for non-exclusive licenses granted by Borrower to its customers in the ordinary
course of business;
(b) Performance of this Agreement does not conflict with or
result in a breach of any agreement to which Borrower is 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 licensor's or other party's consent and this Agreement constitutes
an assignment;
(c) During the term of this Agreement, Borrower will not
transfer or otherwise encumber any interest in the Collateral without Bank's
prior written consent,
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which shall not be unreasonably withheld, except for non-exclusive licenses
granted by Borrower in the ordinary course of business or as set forth in this
Agreement;
(d) To its knowledge, each of the Patents is valid and
enforceable, and no part of the Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Collateral violates the rights of any third party;
(e) Borrower shall promptly advise Bank of any material change
in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Borrower in or to any Trademark, Patent or
Copyright not specified in this Agreement;
(f) 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 (provided that abandonment of
intent to use applications shall not require Lender's consent), unless Borrower
determines that reasonable business practices suggest that abandonment is
appropriate.
(g) Borrower shall file registration applications for the most
recent version of any of Borrower's Copyrights, if not so already registered,
from time to time as Bank may reasonably request and shall, from time to time,
execute and file such other instruments, and take such further actions as Lender
may reasonably request from time to time to perfect or continue the perfection
of Lender's interest in the Collateral;
(h) This Agreement creates, and in the case of after acquired
Collateral, this Agreement will create at the time Borrower first has rights in
such after acquired Collateral, in favor of Bank a valid and perfected first
priority security interest in the Collateral in the United States securing the
payment and performance of the obligations evidenced by the Revolving Promissory
Note dated August 25, 1999, executed by Borrower in favor of Bank upon making
the filings referred to in clause (i) below;
(i) To its knowledge, 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 and assignment created hereunder,
and the filing of a financing statement (Form UCC-1) and except as has been
already made or obtained, no authorization, approval or other action by, and no
notice to or filing with, any U.S. governmental authority or U.S. 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 this Agreement
by Borrower in the U.S. or (ii) for the perfection in the United States or the
exercise by Bank of its rights and remedies hereunder;
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(j) All information heretofore, herein or hereafter supplied
to Lender by or on behalf of Borrower with respect to the Collateral is accurate
and complete in all material respects.
(k) Borrower shall not enter into any agreement that would
materially impair or conflict with Borrower's obligations hereunder without Bank
's prior written consent, which consent shall not be unreasonably withheld.
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 Collateral acquired under such
contracts, except that certain contracts may contain anti-assignment provisions
that could in effect prohibit the creation of a security interest in such
contracts, and except that Borrower shall not be prohibited from granting
exclusive and non-exclusive licenses, or entering into marketing and
distribution agreements in the normal course of its business.
(l) Upon any executive officer of Borrower obtaining actual
knowledge thereof, Borrower will promptly notify Lender in writing of any event
that materially adversely affects the aggregate value of all Collateral, the
ability of Borrower to dispose of a material amount of Collateral or the rights
and remedies of Bank in relation thereto, including the levy of any legal
process against a material amount of the Collateral.
4. Bank's Rights. Bank shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this Agreement 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 4.
5. Inspection Rights. Borrower hereby grants to Bank and its employees,
representatives and agents the right to visit, during reasonable hours upon
prior reasonable written notice to Borrower, any of Borrower's plants and
facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Borrower, provided that unless an
Event of Default has occurred and is continuing, such inspections shall occur no
more frequently than once every six calendar months.
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6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Borrower will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as requested by Bank, to perfect Bank's security interest in all Copyrights,
Patents and Trademarks and otherwise to carry out the intent and purposes of
this Agreement, or for assuring and confirming to Bank the grant or perfection
of a security interest in all Collateral.
(b) Borrower hereby irrevocably appoints Bank as Borrower's
attorney-in-fact, with full authority in the place and stead of Borrower and in
the name of Borrower, from time to time in Bank's discretion, to take any action
and to execute any instrument which Bank may deem necessary or advisable to
accomplish the purposes of this Agreement, including:
(i) To modify, in its sole discretion, this Agreement
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; and
(ii) 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.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under this Agreement:
(a) An Event of Default occurs under the Loan Agreement; or
(b) Borrower breaches any warranty or agreement made by
Borrower in this Agreement and, as to any breach that is capable of cure,
Borrower fails to cure such breach within five (5) days of the occurrence of
such breach.
8. Remedies. Upon the occurrence and continuance of an Event of
Default, Bank shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Borrower to assemble the Collateral and any tangible
property in which Bank has a security interest and to make it available to Bank
at a place reasonably designated by Lender. Bank shall have a nonexclusive,
royalty free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Bank to exercise its rights and
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remedies upon the occurrence of an Event of Default. Borrower will pay any
expenses (including reasonable attorneys' fees) incurred by Bank in connection
with the exercise of any of Bank's rights hereunder, including without
limitation any expense incurred in disposing of the Collateral. All of Bank's
rights and remedies with respect to the Collateral shall be cumulative.
9. Indemnity. Borrower agrees to defend, indemnify and hold harmless
Lender 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 this Agreement, and (b) all
losses or 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 this Agreement or otherwise (including without
limitation reasonable attorneys' fees and reasonable expenses), except for
losses arising from or out of Bank's gross negligence or willful misconduct.
10. Reassignment. At such time as Borrower shall completely satisfy all
of the obligations secured hereunder, Bank shall execute and deliver to Borrower
all deeds, assignments and other instruments as may be necessary or proper to
revest in Borrower full title to the property assigned hereunder, subject to any
disposition thereof which may have been made by Lender pursuant hereto.
11. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this Agreement is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and
disbursements.
13. Amendments. This Agreement may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. California Law and Jurisdiction; Jury Waiver. This Agreement shall
be governed by the laws of the State of California, without regard for choice of
law provisions. Borrower and Bank consent to the exclusive jurisdiction of any
state or federal court located in Santa Clara County, California. Borrower AND
Bank EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THE LOAN AGREEMENT, THIS AGREEMENT, OR ANY
OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
Address of Borrower: Borrower:
1370 Dell Avenue Videonics, Inc.
Campbell, CA 95008
Attn: Gary Williams By: /s/ Gary Williams
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Title:
Address of Lender: Bank:
Three Palo Alto Square, Suite 150 Venture Banking Group, a division of
Palo Alto, CA 94306 Cupertino National Bank
Attn: Nan Walton By: /s/ Jason Hartmann
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EXHIBIT A
Copyrights
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
<PAGE>
EXHIBIT B
Patents
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
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EXHIBIT C
Trademarks
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------ ----
EXHIBIT 10.17
SUBORDINATION AGREEMENT
This Subordination Agreement is made as of August 25, 1999, by and
between the undersigned creditor ("Creditor"), and Venture Banking Group, a
division of Cupertino National Bank ("Bank").
A. Videonics, Inc. ("Borrower") has requested and/or obtained
certain loans or other credit accommodations from Bank to Borrower which are or
may be from time to time secured by assets and property of Borrower.
B. Creditor has extended or other credit accommodations to
Borrower, and/or may extend loans or other credit accommodations to Borrower
from time to time.
C. In order to induce Bank to continue to extend credit to
Borrower and, at any time or from time to time, at Bank's option, to make such
further loans, extensions of credit, or other accommodations to or for the
account of Borrower, or to purchase or extend credit upon any instrument or
writing in respect of which Borrower may be liable in any capacity, or to grant
such renewals or extension of any such loan, extension of credit, purchase, or
other accommodation as Bank may deem advisable, Creditor is willing to
subordinate: (i) all of Borrower's indebtedness and obligations to Creditor,
whether presently existing or arising in the future (the "Subordinated Debt") to
all of Borrower's indebtedness and obligations to Bank; and (ii) all of
Creditor's security interests, if any, to all of Bank's security interests in
the Borrower's property.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Creditor subordinates to Bank any security interest or lien
that Creditor may have in any property of Borrower. Notwithstanding the
respective dates of attachment or perfection of the security interest of
Creditor and the security interest of Bank, the security interest of Bank in the
Collateral, as defined in the Loan and Security Agreement, between Borrower and
Bank, as amended from time to time (the "Loan Agreement"), shall at all times be
prior to the security interest of Creditor.
All Subordinated Debt is subordinated in right of payment to all obligations of
Borrower to Bank now existing or hereafter arising, together with all costs of
collecting such obligations (including attorneys' fees), including, without
limitation, all interest accruing after the commencement by or against Borrower
of any bankruptcy, reorganization or similar proceeding, and all obligations
under the Loan Agreement (the "Senior Debt").
2. Creditor will not demand or receive from Borrower (and
Borrower will not pay to Creditor) all or any part of the Subordinated Debt, by
way of payment, prepayment, setoff, lawsuit or otherwise, nor will Creditor
exercise any remedy with respect to the Collateral, nor will Creditor commence,
or cause to commence, prosecute or participate in any administrative, legal or
equitable action against Borrower, for so long as any portion of the Senior Debt
remains outstanding. The foregoing notwithstanding, Creditor shall be entitled
to receive each regularly scheduled payment of interest that constitutes
Subordinated Debt, provided that an Event of Default, as defined in the Loan
Agreement, has not occurred and is not continuing or would not exist immediately
after such payment.
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Creditor shall promptly deliver to Bank in the form received (except for
endorsement or assignment by Creditor where required by Bank) for application to
the Senior Debt any payment, distribution, security or proceeds received by
Creditor with respect to the Subordinated Debt other than in accordance with
this Agreement.
5. In the event of Borrower's insolvency, reorganization or
any case or proceeding under any bankruptcy or insolvency law or laws relating
to the relief of debtors, these provisions shall remain in full force and
effect, and Bank's claims against Borrower and the estate of Borrower shall be
paid in full before any payment is made to Creditor.
6. For so long as any of the Senior Debt remains unpaid,
Creditor irrevocably appoints Bank as Creditor's attorney-in-fact, and grants to
Bank a power of attorney with full power of substitution, in the name of
Creditor or in the name of Bank, for the use and benefit of Bank, without notice
to Creditor, to perform at Bank's option the following acts in any bankruptcy,
insolvency or similar proceeding involving Borrower:
(i) To file appropriate claim or claims in respect of
the Subordinated Debt on behalf of Creditor if Creditor does not do so prior to
30 days before the expiration of the time to file claims in such proceeding and
if Bank elects, in its sole discretion, to file such claim or claims; and
(ii) To accept or reject any plan of reorganization
or arrangement on behalf of Creditor and to otherwise vote Creditor's claims in
respect of any Subordinated Debt in any manner that Bank deems appropriate for
the enforcement of its rights hereunder.
7. Creditor shall immediately affix a legend to the
instruments evidencing the Subordinated Debt stating that the instruments are
subject to the terms of this Agreement. No amendment of the documents evidencing
or relating to the Subordinated Debt shall directly or indirectly modify the
provisions of this Agreement in any manner which might terminate or impair the
subordination of the Subordinated Debt or the subordination of the security
interest or lien that Creditor may have in any property of Borrower. By way of
example, such instruments shall not be amended to (i) increase the rate of
interest with respect to the Subordinated Debt, or (ii) accelerate the payment
of the principal or interest or any other portion of the Subordinated Debt.
8. This Agreement shall remain effective for so long as
Borrower owes any amounts to Bank under the Loan Agreement or otherwise. If, at
any time after payment in full of the Senior Debt any payments of the Senior
Debt must be disgorged by Bank for any reason (including, without limitation,
the bankruptcy of Borrower), this Agreement and the relative rights and
priorities set forth herein shall be reinstated as to all such disgorged
payments as though such payments had not been made and Creditor shall
immediately pay over to Bank all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to Creditor, Bank
may take such actions with respect to the Senior Debt as Bank, in its sole
discretion, may deem appropriate, including, without limitation, terminating
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advances to Borrower, increasing the principal amount, extending the time of
payment, increasing applicable interest rates, renewing, compromising or
otherwise amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against Borrower or any other person. No such action or inaction shall
impair or otherwise affect Bank's rights hereunder. Creditor waives the
benefits, if any, of Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848,
2849, 2850, 2899 and 3433.
9. This Agreement shall bind any successors or assignees of
Creditor and shall benefit any successors or assigns of Bank. This Agreement is
solely for the benefit of Creditor and Bank and not for the benefit of Borrower
or any other party. Credit further agrees that if Borrower is in the process of
refinancing a portion of the Senior Debt with a new lender, and if Bank makes a
request of Creditor, Creditor shall agree to enter into a new subordination
agreement with the new lender on substantially the terms and conditions of this
Agreement.
10. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
11. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
conflicts of laws principles. Creditor and Bank submit to the exclusive
jurisdiction of the state and federal courts located in Santa Clara County,
California. CREDITOR AND BANK WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
OF THE TRANSACTIONS CONTEMPLETED HEREIN.
12. This Agreement represents the entire agreement with
respect to the subject matter hereof, and supersedes all prior negotiations,
agreements and commitments. Creditor is not relying on any representations by
Bank or Borrower in entering into this Agreement, and Creditor has kept and will
continue to keep itself fully apprised of the financial and other condition of
Borrower. This Agreement may be amended only by written instrument signed by
Creditor and Bank.
13. In the event of any legal action to enforce the rights of
a party under this Agreement, the party prevailing in such action shall be
entitled, in addition to such other relief as may be granted, all reasonable
costs and expenses, including reasonable attorneys' fees, incurred in such
action.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
"Creditor"
By: /s/ Carl Berg
-------------
Carl Berg
"Bank"
Venture Banking Group, a division of
Cupertino National Bank
By: /s/ Jason Hartmann
------------------
Title: Commercial Loan Officer
-----------------------
The undersigned approves of the terms of this Agreement.
"Borrower"
Videonics Inc.
- --------------
By: /s/ Gary Williams
-----------------
Title: V.P. Finance and CFO
--------------------
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INCOME STATEMENT AND BALANCE SHEET DATED SEPTEMBER 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 639
<SECURITIES> 0
<RECEIVABLES> 1,162
<ALLOWANCES> 0
<INVENTORY> 4,692
<CURRENT-ASSETS> 6,664
<PP&E> 705
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,413
<CURRENT-LIABILITIES> 2,305
<BONDS> 0
0
0
<COMMON> 20,698
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,413
<SALES> 10,901
<TOTAL-REVENUES> 10,901
<CGS> 6,333
<TOTAL-COSTS> 6,333
<OTHER-EXPENSES> 6,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,905)
<EPS-BASIC> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
