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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 3
(FINAL AMENDMENT)
TO
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
ROSS TECHNOLOGY, INC.
(Name of the Issuer)
ROSS TECHNOLOGY, INC.
FUJITSU LIMITED
BRIDGEPOINT TECHNICAL MANUFACTURING CORPORATION
(Name of Persons Filing Statement)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class of Securities)
778304105
(CUSIP Number of Class of Securities)
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<TABLE>
<S> <C> <C>
JACK W. SIMPSON, SR. YOSHIRO YOSHIOKA JOE D. JONES
PRESIDENT AND CHIEF EXECUTIVE SENIOR VICE PRESIDENT AND PRESIDENT
OFFICER GROUP PRESIDENT, STRATEGY AND BRIDGEPOINT TECHNICAL
ROSS TECHNOLOGY, INC. PLANNING GROUP MANUFACTURING
TWO CIELO CENTER, THIRD FLOOR FUJITSU LIMITED CORPORATION
1250 CAPITAL OF TEXAS HIGHWAY, 1-1 KAMIKODANAKA 4-CHOME 4007 COMMERCIAL CENTER DRIVE
SOUTH AUSTIN, TEXAS 78746 NAKAHARU-KU AUSTIN, TEXAS 78744
(512) 329-2499 KAWASAKI-SHI, KANAGAWA 211-88 (512) 434-4726
JAPAN
011-81-44-754-3019
</TABLE>
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Persons Filing Statement)
Copies to:
<TABLE>
<S> <C> <C>
ANDREW W. GROSS, ESQ. DAVID C. WILSON, ESQ. KYLE K. FOX, ESQ.
IRELL & MANELLA LLP MORRISON & FOERSTER LLP VINSON & ELKINS L.L.P.
1800 AVENUE OF THE STARS, SUITE 755 PAGE MILL ROAD ONE AMERICAN CENTER,
900 PALO ALTO, CALIFORNIA 94304 600 CONGRESS AVENUE, SUITE 2700
LOS ANGELES, CALIFORNIA 90067 (650) 813-5600 AUSTIN, TEXAS 78701
(310) 277-1010 (512) 495-8539
</TABLE>
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INTRODUCTION
This Amendment No. 3, the final amendment, amends and supplements the Rule
13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") dated
October 30, 1998 of ROSS Technology, Inc., a Delaware corporation (the
"Company"), Fujitsu Limited, a Japanese corporation ("Fujitsu"), and BridgePoint
Technical Manufacturing Corporation, a newly formed Texas corporation (the
"Buyer"), filed pursuant to Section 13(e) of the Securities Exchange Act of
1934, as amended, and Rule 13e-3 thereunder in connection with (i) the sale of
assets (the "Sale of Assets") related to the Company's manufacturing, sale,
distribution and customer service (but not the design) business for the 32-bit
hyperSPARC(TM) families of microprocessors and hyperSTATION(TM) and
SPARCplug(TM) families of 32-bit systems and products (the "Business") to Buyer,
in which Joe D. Jones (currently Vice President of Operations of the Company) is
Chief Executive Officer, President and currently sole stockholder, pursuant to
an Asset Purchase Agreement dated as of July 23, 1998, between the Company and
Buyer (the "Asset Purchase Agreement"), a copy of which is filed as Annex A to
the Information Statement on Schedule 14C filed by the Company with the
Securities and Exchange Commission on November 23, 1998 (the "Information
Statement"); (ii) the sale by the Company to Fujitsu of certain intellectual
property, as more fully described in the Information Statement, pursuant to an
Asset Purchase and License Agreement, dated as of July 10, 1998, between the
Company and Fujitsu (the "IP Sale"); and (iii) the sale by the Company of all of
the issued and outstanding capital stock of the Company's Design Center in
Israel, ROSS Semiconductors (Israel) Ltd. ("RIL"), pursuant to the Share
Acquisition Agreement, dated as of August 6, 1998, between the Company and
Fujitsu (the "Sale of RIL" and, together with the Sale of Assets and the IP
Sale, the "Transactions.")
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Schedule 13E-3.
ITEM 4. TERMS OF THE TRANSACTION.
On December 15, 1998 the Sale of Assets was consummated. The purchase price
received by the Company was $5.66 million in cash, which includes $250,000 that
was deposited by Buyer in an escrow account for an Indemnification Holdback
Amount as a reserve to cover any Buyer Indemnified Costs arising under the Asset
Purchase Agreement, plus the assumption of certain liabilities, all as more
fully described in the Information Statement. There was also, at the closing, a
net purchase price adjustment paid to Buyer of approximately $1.06 million
(subject to post-closing adjustment) for the proration of certain operating
expenses and revenues reasonably allocable to the Business unit as of June 29,
1998 through the Closing. In addition, the Company paid $1.72 million to Buyer
in connection with Buyer's assumption of the Assumed Warranty Repairs.
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ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
(a)(1)* -- Loan and Security Agreement between the Buyer and [Bank]
(a)(2)* -- Senior Subordinated Loan and Security Agreement between
the Buyer and [Bank]
(b)(1)** -- Report of Houlihan Lokey dated June 4, 1998, including
supporting materials provided to the Company
(b)(2)** -- Preliminary Valuation Analysis of KPMG Japan dated
January 1998, including supporting materials provided to
Fujitsu
(c) -- Not applicable.
(d)** -- Information Statement dated November 23, 1998
(incorporated herein by reference to Information
Statement filed by the Company with the SEC on November
23, 1998)
(e) -- Not applicable.
(f) -- Not applicable.
</TABLE>
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* Filed herewith
** Previously filed
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SIGNATURES
After due inquiry and to the best of his knowledge and belief, each of the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
ROSS TECHNOLOGY, INC.
By: /s/ JACK W. SIMPSON, SR.
----------------------------------
Name: Jack W. Simpson, Sr.
--------------------------------
Title: President and Chief
Executive Officer
---------------------------------
FUJITSU LIMITED
By: /s/ YOSHIRO YOSHIOKA
----------------------------------
Name: Yoshiro Yoshioka
--------------------------------
Title: Senior Vice President and
Group President,
Strategy and Planning Group
---------------------------------
BRIDGEPOINT TECHNICAL
MANUFACTURING CORPORATION
By: /s/ JOE D. JONES
----------------------------------
Name: Joe D. Jones
--------------------------------
Title: President and Chief
Executive Officer
---------------------------------
Dated: December 22, 1998
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
(a)(1) -- Loan and Security Agreement between the Buyer and [Bank]
(a)(2) -- Senior Subordinated Loan and Security Agreement between
the Buyer and [Bank]
</TABLE>
<PAGE> 1
EXHIBIT (a)(1)
BRIDGEPOINT TECHNICAL MANUFACTURING CORPORATION
LOAN AND SECURITY AGREEMENT
DATED AS OF DECEMBER 15, 1998
<PAGE> 2
This LOAN AND SECURITY AGREEMENT is entered into as of December 15,
1998, by and between ___________ ("BANK") and BRIDGEPOINT TECHNICAL
MANUFACTURING CORPORATION ("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.
"ADDITIONAL TERM LOAN ADVANCE" has the meaning set forth in
SECTION 2.1.2(C).
"ADVANCE" or "ADVANCES" means a Revolving Advance and/or a Term
Loan Advance.
"AFFILIATE" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"BANK EXPENSES" means all reasonable out of pocket costs or
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and enforcement of
the Loan Documents and Equity Documents; and Bank's reasonable attorneys' fees
and expenses incurred in amending, enforcing or defending the Loan Documents,
(including fees and expenses of appeal or review, or those incurred in any
Insolvency Proceeding) whether or not suit is brought except to the extent a
court
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of competent jurisdiction renders a final judgment and Borrower is the
prevailing party in any suit or action for enforcement or defense of the Loan
Documents and Equity Documents.
"BORROWER'S BOOKS" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"BORROWING BASE" means an amount equal to (i) eighty percent
(80%) of Eligible Accounts plus (ii) the lesser of twenty-five percent (25%) of
the value of Borrower's Eligible Inventory (valued at the lower of cost or
wholesale fair market value) or Five Hundred Thousand Dollars ($500,000), as
determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrower.
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means the property described on EXHIBIT A attached
hereto.
"COMMITTED REVOLVING LINE" means a Credit Extension of up to
Three Million Dollars ($3,000,000).
"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.
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"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 LIABILITIES" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"EBITDA" means, for any period, determined on a consolidated
basis, the sum of (a) pre-tax net income (excluding any items of extraordinary
gain and gains on the sale of assets, other than asset sales in the ordinary
course of business) and (b) to the extent deducted from net income, (i) interest
expense (determined in accordance with GAAP), (ii) depreciation expense and
(iii) expense from the amortization of intangible assets. EBITDA will be
adjusted to exclude (a) items of extraordinary losses and losses on the sale of
assets, (b) interest income and other non-operating income, (c) any
extraordinary non-cash items deducted from or included in the calculation of
pre-tax net income (other than items which will require cash payments and for
which an accrual or reserve is, or is required by GAAP to be, made) and (d) the
EBITDA of any Subsidiaries or assets disposed of or discontinued during such
period.
"ELIGIBLE ACCOUNTS" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in SECTION 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. Unless otherwise agreed to by Bank in
writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%)
of all Accounts to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank;
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(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the
account debtor 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
(sometimes referred to as "contra" accounts, e.g. accounts payable, customer
deposits, credit accounts etc.) against amounts owed to Borrower;
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful by reason of the account debtor's financial condition.
"ELIGIBLE INVENTORY" means that portion of Borrower's Inventory
that consists of finished products intended for sale or lease, which is located
at Borrower's principal place of business or such other locations as are
permitted under SECTION 7.11 and which complies with the representations and
warranties set forth in SECTION 5.5, but shall in any event exclude used,
returned or obsolete Inventory.
"EQUIPMENT" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"EQUITY DOCUMENTS" mean that certain Warrant Subscription
Agreement dated as of the date hereof by and among Borrower, Bank and certain
stockholders named therein (the "WARRANT SUBSCRIPTION AGREEMENT"), the Warrant
(as defined in the Warrant Subscription Agreement) and the Shareholders
Agreement (as defined in the Warrant Subscription Agreement).
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"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"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.
"INITIAL TERM LOAN ADVANCE" has the meaning set forth in SECTION
2.1.2(B).
"INITIAL TERM LOAN MATURITY DATE" means forty-eight (48) months
from the date of the Initial Term Loan Advance.
"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 Borrower's right and
title to:
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(e) All licenses, including, without limitation, the Ross
Technology License or other rights to use any of the Copyrights, Patents,
Trademarks, or Mask Works, and all license fees and royalties arising from such
use to the extent permitted by such license or rights;
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(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"INVENTORY" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"INVESTMENT" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"LIEN" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"LOAN DOCUMENTS" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"MASK WORKS" means all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired;
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"MAXIMUM LEGAL RATE" means, with respect to Bank, the maximum
non-usurious interest rate, if any, that any time or from time to time may be
contracted for, taken, reserved, charged or received with respect to the
Obligations as to which such rate is to be determined, payable to Bank pursuant
to this Agreement, any Loan Documents or any other agreement, contract or
document by or between Bank or Borrower, under laws applicable to
6
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Bank which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow. The Maximum
Legal Rate shall be calculated in a manner that takes into account any and all
fees, payments and other charges in respect of this Agreement, any Loan
Documents or any other agreement, contract or document by or between Bank or
Borrower that constitute interest under applicable law. Each change in any
interest rate provided for herein based upon the Maximum Legal Rate resulting
from a change in the Maximum Legal Rate shall take effect without notice to
Borrower at the time of such change in the Maximum Legal Rate.
"MATURITY DATE" means the later to occur of the Revolving
Maturity Date or the Term Loan Maturity Date.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"OBLIGATIONS" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise; provided, however, that Borrower's obligation to pay
debt, principal, interest, Bank Expenses or other amounts to Bank pursuant to
the Equity Documents shall be excluded from the definition of hereof so long as
such obligation arises after the payment in full of all debt, principal,
interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to
the Loan Documents.
"PATENTS" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
"PAYMENT DATE" means the last calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Maturity Date.
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
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(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank.
"PERMITTED LIENS" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) 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; and
(e) Liens incurred pursuant to the Subordinated Loan
Agreement.
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"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.
"PLAN" means any employee benefit plan, as defined in section
3(2) of ERISA, which is currently or hereafter sponsored by, maintained or
contributed to by Borrower or a Subsidiary.
"PRIME RATE" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"QUICK ASSETS" means, as of any applicable date, the
consolidated cash, cash equivalents, accounts receivable and investments with
maturities of fewer than 90 days of Borrower determined in accordance with GAAP.
"RESPONSIBLE OFFICER" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller of
Borrower.
"REVOLVING ADVANCE" or "REVOLVING ADVANCES" means a loan
advance under the Committed Revolving Line.
"REVOLVING MATURITY DATE" means December 15, 1999.
"ROSS TECHNOLOGY LICENSE" means that certain Technology
Framework Agreement effective as of the Closing Date, by and between Borrower,
Ross (as defined below) and Fujitsu Limited.
"SCHEDULE" means the schedule of exceptions attached hereto,
if any.
"SERVICE BUSINESS EBITDA" means that portion of Borrower's
EBITDA calculation which is provided by Borrower's testing service business.
"SUBORDINATED DEBT" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"SUBORDINATED LOAN AGREEMENT" means that certain Senior
Subordinated Loan and Security Agreement dated as of the date hereof, by and
between Borrower and Bank.
"SUBORDINATION AGREEMENT" means that Subordination Agreement
dated as of the date hereof, by and between Borrower and Bank.
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"SUBSIDIARY" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"TANGIBLE NET WORTH" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"TERM LOAN ADVANCE" or "TERM LOAN ADVANCES" means a loan
advance under the Term Loan Commitment including, without limitation,, the
Initial Term Loan Advance and the Additional Term Loan Advances.
"TERM LOAN AVAILABILITY" means the difference between the Term
Loan Commitment and the Initial Term Loan Advance.
"TERM LOAN BORROWING BASE" means an amount equal to two
hundred and fifty percent (250%) of Borrower's Service Business EBITDA as
calculated for the four (4) fiscal quarter period preceding Borrower's request
for any Additional Term Loan Advance.
"TERM LOAN COMMITMENT" means a Credit Extension of Five
Million Dollars ($5,000,000).
"TERM LOAN MATURITY DATE" means December 15, 2003.
"TOTAL LIABILITIES" means as of any applicable date, any date
as of which the amount thereof shall be determined, all obligations that should,
in accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
"TRADEMARKS" means any trademark and servicemark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of Assignor
connected with and symbolized by such trademarks.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
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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 COMMITTED REVOLVING LINE
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Revolving Advances to Borrower in an aggregate
outstanding amount not to exceed the Committed Revolving Line or the Borrowing
Base, whichever is less. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this SECTION 2.1.1 may be repaid and reborrowed at
any time during the term of this Agreement.
(b) Whenever Borrower desires a Revolving 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 Revolving 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 Revolving
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 Revolving 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 Revolving Advances made under this
SECTION 2.1.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Revolving Advances under this SECTION
2.1.1 shall be immediately due and payable.
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2.1.2 TERM LOAN COMMITMENT.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Term Loan Advances to Borrower in an aggregate
amount not to exceed the Term Loan Commitment.
(b) INITIAL TERM LOAN ADVANCE. On the Closing Date, Bank shall
make a Term Loan Advance available to Borrower in an amount not to exceed Two
Million Dollars ($2,000,000) (the "INITIAL TERM LOAN ADVANCE). Borrower shall
pay forty-eight (48) equal installments of principal plus interest (each an
"INITIAL TERM LOAN PAYMENT"). Each Initial Term Loan Payment shall be due and
payable on the Payment Date commencing one month after the date of the Initial
Term Loan Advance. Borrower's final Initial Term Loan Payment, due on the
Initial Term Loan Maturity Date, shall include all amounts outstanding under the
Initial Term Loan Advance plus all accrued interest not yet paid.
(c) ADDITIONAL TERM LOAN ADVANCES. Notwithstanding any of the
foregoing provisions above and subject to the terms and conditions of this
Agreement, commencing with the fiscal quarter ending September 30, 1999, Bank
agrees to make additional Term Loan Advances to Borrower (each an "ADDITIONAL
TERM LOAN ADVANCE") in an aggregate outstanding amount not to exceed the lesser
of the Term Loan Availability or the Term Loan Borrowing Base; provided,
however, that each such Additional Term Loan Advance shall be (a) requested by
Borrower no more than once in each fiscal quarter; (b) in an amount of not less
than Two Hundred Fifty Thousand Dollars ($250,000); and (c) first used to repay
any and all outstanding indebtedness under the Subordinated Loan Agreement. With
respect to each Additional Term Loan Advance, Borrower shall pay forty-eight
(48) equal installments of principal plus interest (each an "ADDITIONAL TERM
LOAN PAYMENT") which Additional Term Loan Payments shall be due and payable on
the Payment Date commencing one month after such Additional Term Loan Advance.
Borrower's final Additional Term Loan Payment, with respect to each Additional
Term Loan Advance, shall be due forty-eight (48) months from the date of such
Additional Term Loan Advance and shall include all amounts outstanding under
such Additional Term Loan Advance plus all accrued interest not yet paid;
provided, however, that Additional Term Loan Advances outstanding on the Term
Loan Maturity Date shall be due and payable on such date.
(d) Whenever Borrower desires a Term Loan 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 Term Loan 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 Term Loan
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 Term Loan 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
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by Bank as a result of such reliance. Bank will credit the amount of Term Loan
Advances made under this SECTION 2.1.2 to Borrower's deposit account.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to SECTION 2.1.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
2.3.1 INTEREST RATE. Except as set forth in SECTIONS 2.3.2 and
2.3.3 (i) any Revolving Advances shall bear interest, on the average daily
balance thereof, at a per annum floating rate equal to one half of one (0.5)
percentage point above the Prime Rate and (ii) any Term Loan Advances shall bear
interest at a floating rate equal to one (1.0) percentage point per annum above
the Prime Rate.
2.3.2 INTEREST RATE RESET. If Borrower fails to perform any
obligation under SECTIONS 6.8, 6.9, 6.10 OR 6.11 (a "FINANCIAL COVENANT
DEFAULT") in any one month, all Credit Extensions shall automatically bear
interest at a rate equal to one half (0.5) percentage point above the interest
rate applicable immediately prior to the occurrence of such Financial Covenant
Default. If any such Financial Covenant Default shall continue for two
consecutive months, all Credit Extensions shall automatically bear interest at a
rate equal to one half of one (0.5) percentage point above the interest rate
applicable immediately prior to the continuance of such Financial Covenant
Default; provided, however, that upward adjustments to the interest rate
pursuant to this SECTION 2.3.2 shall not exceed one (1) percentage point in the
aggregate; that once Borrower cures a Financial Covenant Default, all Credit
Extensions shall bear interest at a rate equal to the applicable interest rate
set forth in SECTION 2.3.1 above.
2.3.3 DEFAULT RATE. Notwithstanding any of the foregoing
provisions contained in this SECTION 2.3, at the option of Bank all Obligations
shall bear interest, from and after the occurrence of an Event of Default, at a
rate equal to two (2) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
2.3.4 MAXIMUM LEGAL RATE.
(a) Notwithstanding the foregoing, if at any time the sum of
(i) the amount of interest computed herein and (ii) all other consideration
received by Bank that is deemed to constitute interest under applicable law,
would exceed the Maximum Legal Rate, then the interest payable under this
Agreement shall be computed upon the basis of the Maximum Legal Rate and
strictly limited thereto, but any subsequent increase in the Maximum Legal Rate
or subsequent reduction in the rate of interest payable under this Agreement
shall not reduce such interest thereafter payable below the amount computed on
the basis of the Maximum Legal Rate until the aggregate amount of such interest
accrued and payable equals the total amount of interest that would have accrued
if such interest had been at all times computed solely on the
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basis of the interest rate set forth in SECTIONS 2.3.1, 2.3.2 and 2.3.4, plus
the other compensation received by Bank that is deemed to constitute interest
under applicable law. Furthermore, if at the Maturity Date the total amount of
interest paid or accrued under the foregoing provisions is less than the total
amount of interest that would have accrued based upon the interest rates
specified in SECTIONS 2.3.1, 2.3.2 and 2.3.4 above, then, to the extent allowed
by law, Borrower agrees to pay to Bank an amount equal to the difference between
(A) the lesser of (x) the amount of interest that would have accrued if the
Maximum Legal Rate had at all times been in effect and (y) the amount of
interest that would have accrued if the rates and amounts specified in SECTIONS
2.3.1, 2.3.2 and 2.3.4 above had at all times been in effect; and (B) the amount
of interest accrued in accordance with the foregoing provisions.
(b) No agreements, conditions, provisions or stipulations
contained in this Agreement, the Loan Documents or any other instrument,
document or agreement between Borrower and Bank, or default of Borrower, or
exercise by Bank of the right to accelerate the payment or the maturity of
principal and interest, or to exercise any option whatsoever contained in this
Agreement, the Loan Documents or any other agreement between Borrower and Bank,
or arising out of any contingency whatsoever, shall entitle Bank to contract
for, charge, collect or receive, in any event, interest exceeding the Maximum
Legal Rate; and in no event shall Borrower be obligated to pay interest
exceeding such Maximum Legal Rate; and all agreements, conditions or
stipulations, if any, that may in any event or contingency whatsoever operate to
bind, obligate or compel Borrower to pay a rate of interest exceeding the
Maximum Legal Rate, shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is contracted for, charged, collected or
received in excess of the Maximum Legal Rate ("EXCESS"), such Excess shall be,
first, applied to reduce the principal then unpaid under this Agreement; second,
applied pro rata to reduce all other of the Obligations then due; and third,
returned to Borrower, it being the intention of the parties hereto not to enter
into or cause at any time a usurious or otherwise illegal relationship. For the
purpose of determining whether or not any Excess has been contracted for,
charged, collected or received by Bank, Borrower and Bank shall, to the maximum
extent permitted under applicable law, (A) characterize any nonprincipal payment
as an expense, fee or premium rather than interest, (B) exclude voluntary
prepayments and the effects thereof, and (C) with respect to all interest at any
time contracted for, charged, collected or received by Bank in connection with
this Agreement, amortize, prorate, allocate and spread the same in equal parts,
or otherwise as appropriate, to ensure that, to the extent possible, no Excess
exists during the entire term of this Agreement; provided, however, that, if the
Obligations are paid and performed in full prior to the full contemplated term
thereof, and if the interest received by Bank for the actual period of existence
thereof exceeds the maximum permitted by applying the Maximum Legal Rate, Bank
shall refund to Borrower the amount of the Excess.
(c) If, prior to the repayment in full of the Obligations, the
applicable state or federal law is amended in the future to allow a greater rate
of interest to be charged under this Agreement or the Loan Documents than is
presently allowed by applicable state or federal law, then the limitation of
interest hereunder by the Maximum Legal Rate shall
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be increased to such greater rate of interest, which increase shall be effective
hereunder on the effective date of such amendment, and all interest charges
owing to Bank by reason thereof, if any, shall be payable upon demand, if the
Obligations are then fully matured, or concurrently with the next payment of
interest due under the Obligations; provided, however, if the Obligations are
fully paid and discharged, no such interest charges shall be owing to Bank by
reason of such amendment.
2.3.5 PAYMENTS. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number _____________________ for
payments of principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank
has made against Borrower's accounts. Any such debits against Borrower's
accounts in no way shall be deemed a set-off. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
2.3.6 COMPUTATION. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
2.5.1 FACILITY FEE. With respect to the Term Loan Commitment, a
Facility Fee equal to Twenty-Five Thousand Dollars ($25,000) shall be due and
payable on the Closing Date and shall be fully earned and non-refundable;
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2.5.2 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;
2.5.3 BANK EXPENSES. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 ADDITIONAL COSTS. In case any change in law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
2.6.1 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);
2.6.2 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
2.6.3 imposes upon Bank any other condition with respect to its
performance under this Agreement, and the result of any of the foregoing is to
increase the cost to Bank, reduce the income receivable by Bank or impose any
expense upon Bank with respect to any loans, Bank shall notify Borrower thereof.
Borrower agrees to pay to Bank the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Bank of a statement of the amount
and setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.
2.7 TERM. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to SECTION 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
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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, prior to the Closing Date and in form and
substance satisfactory to Bank, the following:
3.1.1 this Agreement;
3.1.2 a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
3.1.3 an intellectual property security agreement;
3.1.4 an opinion of Borrower's counsel, in form and substance
satisfactory to Bank;
3.1.5 a solvency certificate and notice to creditors of Borrower
in form and substance satisfactory to Bank;
3.1.6 a subordination agreement subordinating the rights of
parties to the Subordinated Loan Agreement under the same to the rights of Bank
under this Agreement;
3.1.7 evidence of the completion of an accounts receivable audit
with results satisfactory to Bank;
3.1.8 evidence that Borrower has received new equity investments
in an amount no less than One Million Dollars ($1,000,000) and having rights,
privileges and preferences satisfactory to Bank.
3.1.9 evidence that the Asset Purchase Agreement ("ASSET PURCHASE
AGREEMENT") dated July 23, 1998, by and between Borrower and Ross Technology,
Inc., a Delaware corporation ("ROSS"), has closed in accordance with the terms
thereof without waiver of any of the conditions precedent contained therein;
3.1.10 evidence satisfactory to Bank of Ross' consent to the
collateral assignment to Bank of all of Borrower's rights, title and interest
in, to and under the Asset Purchase Agreement;
3.1.11 financing statements covering the Collateral (Forms
UCC-1);
3.1.12 evidence of the release of any prior existing security
interest in Borrower's Collateral;
3.1.13 insurance certificate;
3.1.14 payment of the fees and Bank Expenses then due specified
in SECTION 2.5 hereof;
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3.1.15 payment by check of legal fees due and payable to Cooley
Godward; and
3.1.16 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:
3.2.1 timely receipt by Bank of the Payment/Advance Form as
provided in SECTION 2.1; and
3.2.2 the representations and warranties contained in SECTION 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this SECTION 3.2.2.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Unless otherwise agreed to in writing by
Bank, notwithstanding termination of this Agreement, Bank's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test,
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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, as of the
Closing Date, 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 unless
the failure to so qualify would not have a Material Adverse Effect. Borrower
further represents and warrants that from and after the Closing Date, that
Borrower and each Subsidiary is in good standing under the laws of its state of
incorporation and in any state in which the conduct of its business or its
ownership of property requires that it be qualified and licensed to business
unless a failure to so qualify would not have a Material Adverse Effect.
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 except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent and
the Loan Documents constitute an assignment Borrower is not in default under any
agreement to which it is a party or by which it is bound, which default could
have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects
of good and marketable quality, free from all material defects.
5.6 INTELLECTUAL PROPERTY. Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers and suppliers 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,
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and no claim has been made that any part of the Intellectual Property
Collateral violates the rights of any third party. Except for and upon the
filing with the United States Patent and Trademark Office with respect to the
Patents and Trademarks and the Register of Copyrights with respect to the
Copyrights and Mask Works necessary to perfect the security interests created
hereunder, and except as has been already made or obtained, no authorization,
approval or other action by, and no notice to or filing with, any United States
governmental authority or United States regulatory body is required either (i)
for the grant by Borrower of the security interest granted hereby or for the
execution, delivery or performance of Loan Documents by Borrower in the United
States or (ii) for the perfection in the United States or the exercise by Bank
of its rights and remedies hereunder.
5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in SECTION 10 hereof.
5.8 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.10 SOLVENCY. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower possesses adequate capital to sustain its business after the
transactions contemplated by this Agreement; and Borrower is able to pay its
debts (including trade debts) as they mature.
5.11 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of section 302 of ERISA with respect to any Plan.
No event has occurred resulting from Borrower's failure to comply with ERISA
that is reasonably likely to result in Borrower's incurring any liability that
could have a Material Adverse Effect. Borrower is not an "investment company" or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940. Borrower is not engaged principally, or as one
of its important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulations G, T
and U of the Board of
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Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.12 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.13 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected therein.
5.14 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted unless
the failure to obtain any such consents, approvals or authorizations is not
reasonably likely to cause a Material Adverse Effect.
5.16 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading at the time such statements were made.
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:
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6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of section 302 ERISA with
respect to any Plan. Borrower shall comply, and shall cause each Subsidiary to
comply, with all statutes, laws, ordinances and government rules and regulations
to which it is subject, noncompliance with which could have a Material Adverse
Effect or a material adverse effect on the Collateral or the priority of Bank's
Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver
to Bank: (a) as soon as available, but in any event within thirty (30) days
after the end of each month, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such period,
in a form and certified by an officer of Borrower reasonably acceptable to Bank;
(b) as soon as available, but in any event within one hundred and twenty (120)
days after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
within five (5) days of filing, copies of all statements, reports and notices
sent or made available generally by Borrower to its security holders or to any
holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed
with the Securities and Exchange Commission; (d) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (e) prompt notice
of any material change in the composition of the Intellectual Property
Collateral, including, but not limited to, any subsequent ownership right of the
Borrower in or to any Copyright, Patent or Trademark not specified in any
intellectual property security agreement between Borrower and Bank or knowledge
of an event that materially adversely effects the value of the Intellectual
Property Collateral; and (f) such annual budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time to
time; provided, however, that in the event that Borrower has repaid all
outstanding Obligations and Bank no longer has any commitment to make a Credit
Extension hereunder, Borrower shall comply with (a) through (f) above for so
long as Bank shall hold warrants to purchase Borrower's stock or securities of
Borrower issued pursuant to such warrants.
Within thirty (30) 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.
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Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of EXHIBIT
D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than once every year 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 Two
Hundred Thousand Dollars ($200,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is (i) contested in good faith
by appropriate proceedings , (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
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6.6 INSURANCE.
6.6.1 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.
6.6.2 All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. With one exception of payroll and benefit
accounts, Borrower shall maintain its principal depository and operating
accounts with Bank.
6.8 QUICK RATIO. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Assets to Current Liabilities of at least 1.5
to 1.0.
6.9 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).
6.10 PROFITABILITY. Borrower shall be profitable for each fiscal
quarter.
6.11 DEBT SERVICE RATIO. Beginning December 31, 1998, Borrower shall
maintain, as of the last day of each calendar month, a Debt Service Ratio of not
less than 1.50 to 1.00. "DEBT SERVICE RATIO" is defined as EBITDA annualized for
the preceding three month period divided by the current portion of all long term
debt plus annual interest expense.
6.12 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
6.12.1 Borrower shall register or cause to be registered (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement. Borrower shall
register or cause to be registered with the United States Patent and Trademark
Office or the
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United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Borrower from time to time in
connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B, C and D except to the
extent that (i) Borrower, in its commercially reasonable judgment, determines
that such registration is unnecessary to protect its intellectual property
rights; and (ii) such registration has not been requested by Bank in its
commercially reasonable discretion.
6.12.2 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.
6.12.3 Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents, Copyrights, and Mask
Works, (ii) use its best efforts to detect infringements of the Trademarks,
Patents, Copyrights and Mask Works and promptly advise Bank in writing of
material infringements detected and (iii) not allow any Trademarks, Patents,
Copyrights, or Mask Works to be abandoned, forfeited or dedicated to the public
without the written consent of Bank, which shall not be unreasonably withheld,
unless Bank determines that reasonable business practices suggest that
abandonment is appropriate.
6.12.4 Bank shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this SECTION 6.12 to take but which Borrower fails to take, after fifteen (15)
days' notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this SECTION 6.12.
6.13 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following without Bank's prior written consent:
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 material part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business, (ii) of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; (iii) that constitute payment of normal and
usual operating expenses in the ordinary course of business; or (iii) of
worn-out or obsolete Equipment.
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7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS LOCATIONS.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a change in Borrower's ownership or management. Borrower will not,
without at least thirty (30) days prior written notification to Bank, relocate
its chief executive office or add any new offices or business locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person other than
in connection with the acquisition of certain assets of Ross Technology, Inc.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 INTELLECTUAL PROPERTY AGREEMENTS. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts, except to
the extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgement.
7.10 SUBORDINATED DEBT. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
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7.11 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in SECTION 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 COMPLIANCE. Become an "investment company" or a company controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of section 302 of ERISA; permit a
Reportable Event as defined in section 4043 of ERISA or Prohibited Transaction
as defined in section 406 ERISA to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, which violation
could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral; or permit any of
its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of the
Obligations and has failed to cure such default within five (5) days thereafter.
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8.2 COVENANT DEFAULT. If Borrower fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank (excluding the Equity
Documents) and as to any default under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure such default within
ten (10) days after the occurrence thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Advances will be required to be made during such
cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
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)
or such action or event could not have a Material Adverse Effect;
8.4 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.5 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties that could have a Material
Adverse Effect;
8.6 SUBORDINATED DEBT. (a) If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination
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agreement entered into with Bank; or (b) if an Event of Default occurs under the
Subordination Agreement;
8.8 JUDGMENTS. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Two Hundred Thousand
Dollars ($200,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
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:
9.1.1 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);
9.1.2 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;
9.1.3 Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
9.1.4 Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge in order
to exercise any of Bank's rights or remedies provided herein, at law, in equity,
or otherwise;
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9.1.5 Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
9.1.6 Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this SECTION 9.1,
to use, without charge, the Intellectual Property Collateral, including, without
limitation, Borrower's labels, patents, copyrights, mask works, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and, in connection with Bank's exercise of its rights under this SECTION 9.1,
Borrower's rights under all licenses and all franchise agreements shall inure to
Bank's benefit;
9.1.7 Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
9.1.8 Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
9.1.9 Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to modify, in its
sole discretion, any intellectual property security agreement entered into
between Borrower and Bank without first obtaining Borrower's approval of or
signature to such modification by amending Exhibit A, Exhibit B, Exhibit C, and
Exhibit D, thereof, as appropriate, to include reference to any right, title or
interest in any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower
after the execution hereof or to delete any reference to any right, title or
interest in any Copyrights, Patents, Trademarks, or Mask Works in which Borrower
no longer has or claims any right, title or interest; (g) to file, in its sole
discretion, one or more financing or continuation statements and
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amendments thereto, relative to any of the Collateral without the signature of
Borrower where permitted by law; and (h) to transfer the Intellectual Property
Collateral into the name of Bank or a third party to the extent permitted under
the California Uniform Commercial Code provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
SECTION 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact, and each and every one of
Bank's rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed and Bank's
obligation to provide Advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in SECTION 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
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9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower BridgePoint Technical Manufacturing
Corporation
4007 Commercial Center Drive
Austin, TX 78744
Attn: Joe David Jones
Fax: 512/434-4750
If to Bank _______________________________
________________________________
Attn: ___________________________
FAX: ___________________________
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY
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<PAGE> 34
REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL
AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall, indemnify, defend, protect and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses,
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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.
12.8 CONFIDENTIALITY. In handling any confidential information Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as Bank may deem
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
[INTENTIONALLY BLANK]
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER BRIDGEPOINT TECHNICAL
MANUFACTURING CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BANK
--------------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 37
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, 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
<PAGE> 38
(g) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE> 1
EXHIBIT(a)(2)
BRIDGEPOINT TECHNICAL MANUFACTURING CORPORATION
SENIOR SUBORDINATED LOAN AND SECURITY AGREEMENT
DATED AS OF DECEMBER 15, 1998
<PAGE> 2
This LOAN AND SECURITY AGREEMENT is entered into as of December 15,
1998, by and between _________________ ("BANK") and BRIDGEPOINT TECHNICAL
MANUFACTURING CORPORATION ("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.
"AFFILIATE" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person
that controls or is controlled by or is under common control with such Person,
and each of such Person's senior executive officers, directors, partners and,
for any Person that is a limited liability company, such Persons, managers and
members.
"BANK EXPENSES" means all reasonable out of pocket
costs or expenses (including reasonable attorneys' fees and expenses) incurred
in connection with the preparation, negotiation, administration, and enforcement
of the Loan Documents and Equity Documents; and Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents, (including fees and expenses of appeal or review, or those incurred
in any Insolvency Proceeding) whether or not suit is brought except to the
extent a court of competent jurisdiction renders a final judgment and Borrower
is the prevailing party in any suit or action for enforcement or defense of Loan
Documents and Equity Documents.
"BORROWER'S BOOKS" means all of Borrower's books and
records including, without limitation: ledgers; records concerning Borrower's
assets or liabilities, the
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<PAGE> 3
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"BUSINESS DAY" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized or
required to close.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means the property described on EXHIBIT
A attached hereto.
"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 the Term Loan or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"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
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<PAGE> 4
such Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"EQUIPMENT" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"EQUITY DOCUMENTS" mean that Warrant Subscription
Agreement dated as of the date hereof by and among Borrower, Bank and certain
stockholders named therein (the "WARRANT SUBSCRIPTION AGREEMENT"), the Warrant
(as defined in the Warrant Subscription Agreement) and the Shareholders
Agreement (as defined in the Warrant Subscription Agreement).
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles
as in effect in the United States from time to time.
"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 Borrower's
rights in and title to:
(a) Copyrights, Trademarks, Patents, and
Mask Works;
(b) Any and all trade secrets, and any and
all intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be
available to Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of
past, present and future infringement of any of the rights included above, with
the right, but not the obligation, to
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<PAGE> 5
sue for and collect such damages for said use or infringement of the
intellectual property rights identified above;
(e) All licenses or other rights to use any
of the Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;
(f) All amendments, renewals and extensions
of any of the Copyrights, Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the
foregoing, including without limitation all payments under insurance or any
indemnity or warranty payable in respect of any of the foregoing.
"INVENTORY" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"INVESTMENT" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"LIEN" means any mortgage, lien, deed of trust,
charge, pledge, security interest or other encumbrance.
"LOAN DOCUMENTS" means, collectively, this Agreement,
any note or notes that may be executed by Borrower in favor of Bank as a part of
this Agreement, the Equity Documents, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated from time to time.
"MASK WORKS" means all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired;
"MATERIAL ADVERSE EFFECT" means a material adverse
effect on (i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken
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<PAGE> 6
as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise
perform its obligations under the Loan Documents.
"MATURITY DATE" means December 15, 2001.
"MAXIMUM LEGAL RATE" means, with respect to Bank, the
maximum non-usurious interest rate, if any, that any time or from time to
time may be contracted for, taken, reserved, charged or received with respect to
the Obligations as to which such rate is to be determined, payable to Bank
pursuant to this Agreement, any Loan Documents or any other agreement, contract
or document by or between Bank or Borrower, under laws applicable to Bank which
are presently in effect or, to the extent allowed by law, under such applicable
laws which may hereafter be in effect and which allow a higher maximum
non-usurious interest rate than applicable laws now allow. The Maximum Legal
Rate shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of this Agreement, any Loan Documents or
any other agreement, contract or document by or between Bank or Borrower that
constitute interest under applicable law. Each change in any interest rate
provided for herein based upon the Maximum Legal Rate resulting from a change in
the Maximum Legal Rate shall take effect without notice to Borrower at the time
of such change in the Maximum Legal Rate.
"NEGOTIABLE COLLATERAL" means all of Borrower's
present and future letters of credit of which it is a beneficiary, notes,
drafts, instruments, securities, documents of title, and chattel paper.
"OBLIGATIONS" means all debt, principal, interest,
Bank Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any Loan Document, 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; provided, however, that Borrower's
obligation to pay debt, principal, interest, Bank Expenses or other amounts to
Bank pursuant to the Equity Documents shall be excluded from the definition of
hereof so long as such obligation arises after the payment in full of all debt,
principal, interest, Bank Expenses and other amounts owed to Bank by Borrower
pursuant to the Loan Documents.
"PATENTS" means all patents, patent applications and
like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same.
"PAYMENT DATE" means the last calendar day of each
month commencing on the first such date after the Closing Date and ending on
the earlier to occur of (i) repayment in full of all Obligations due under this
Agreement or (ii) the Maturity Date.
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<PAGE> 7
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of Borrower in favor of
Bank arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing
Date and disclosed in the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred
in the ordinary course of business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENT" means:
(a) Investments existing on the Closing Date
disclosed in the Schedule; and
(b) (i) marketable direct obligations issued
or unconditionally guaranteed by the United States of America or any agency or
any State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the date
of creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc., and
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Bank.
"PERMITTED LIENS" means the following:
(a) Any Liens existing on the Closing Date
and disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or
other governmental charges or levies, either not delinquent or being contested
in good faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the same have
no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment
acquired or held by Borrower or any of its Subsidiaries to secure the purchase
price of such Equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such Equipment, or (ii) existing on such equipment
at the time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment; and
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<PAGE> 8
(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; and
(e) Liens incurred in favor of Bank or other
lenders approved by Bank.
"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.
"PLAN" means any employee benefit plan, as defined in
section 3(2) of ERISA, which is currently or hereafter sponsored by, maintained
or contributed to by Borrower or a Subsidiary.
"PRIME RATE" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"RESPONSIBLE OFFICER" means each of the Chief
Executive Officer, the President, the Chief Financial Officer and the Controller
of Borrower.
"SCHEDULE" means the schedule of exceptions attached
hereto, if any.
"SENIOR LOAN AGREEMENT" means that certain Loan and
Security Agreement dated as of the date hereof, by and between Borrower and
Bank.
"SUBORDINATED DEBT" means any debt incurred by
Borrower that is subordinated to the debt owing by Borrower to Bank on terms
acceptable to Bank (and identified as being such by Borrower and Bank).
"SUBORDINATION AGREEMENT" means that Subordination
Agreement dated as of the date hereof, by and between Borrower and Bank.
"SUBSIDIARY" means with respect to any Person,
corporation, partnership, company association, joint venture, or any other
business entity of which more than fifty percent (50%) of the voting stock or
other equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"TOTAL LIABILITIES" means as of any applicable date,
any date as of which the amount thereof shall be determined, all obligations
that should, in accordance with GAAP be
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<PAGE> 9
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
"TRADEMARKS" means any trademark and servicemark
rights, whether registered or not, applications to register and registrations of
the same and like protections, and the entire goodwill of the business of
Assignor connected with and symbolized by such trademarks.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the notes
and schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS. Borrower promises to pay to the order
of Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower hereunder.
Borrower shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make a term loan to Borrower on the Closing Date
in an aggregate principal amount of Three Million Dollars ($3,000,000) (the
"TERM LOAN").
2.1.2 The Term Loan shall terminate on the Maturity Date,
at which time all Obligations under this SECTION 2.1 and other amounts due under
this Agreement shall be immediately due and payable.
2.2 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to SECTION 2.1 of this
Agreement is greater than the Term Loan, Borrower shall immediately pay to Bank,
in cash, the amount of such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
2.3.1 INTEREST RATE. Except as set forth in SECTION
2.3.2, Credit Extensions shall bear interest, on the average daily balance
thereof, at a per annum rate equal to twelve percent (12%).
2.3.2 DEFAULT RATE. All Obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate equal to four
(4) percentage points above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
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<PAGE> 10
2.3.3 MAXIMUM LEGAL RATE.
(a) Notwithstanding the foregoing, if at any time the
sum of (i) the amount of interest computed herein and (ii) all other
consideration received by Bank that is deemed to constitute interest under
applicable law, would exceed the Maximum Legal Rate, then the interest payable
under this Agreement shall be computed upon the basis of the Maximum Legal Rate
and strictly limited thereto, but any subsequent increase in the Maximum Legal
Rate or subsequent reduction in the rate of interest payable under this
Agreement shall not reduce such interest thereafter payable below the amount
computed on the basis of the Maximum Legal Rate until the aggregate amount of
such interest accrued and payable equals the total amount of interest that would
have accrued if such interest had been at all times computed solely on the basis
of the interest rate set forth in SECTIONS 2.3.1 and 2.3.2, plus the other
compensation received by Bank that is deemed to constitute interest under
applicable law. Furthermore, if at the Maturity Date the total amount of
interest paid or accrued under the foregoing provisions is less than the total
amount of interest that would have accrued based upon the interest rates
specified in SECTIONS 2.3.1 and 2.3.2 above, then, to the extent allowed by law,
Borrower agrees to pay to Bank an amount equal to the difference between (A) the
lesser of (x) the amount of interest that would have accrued if the Maximum
Legal Rate had at all times been in effect and (y) the amount of interest that
would have accrued if the rates and amounts specified in SECTIONS 2.3.1 and
2.3.2 above had at all times been in effect; and (B) the amount of interest
accrued in accordance with the foregoing provisions.
(b) No agreements, conditions, provisions or
stipulations contained in this Agreement, the Loan Documents or any other
instrument, document or agreement between Borrower and Bank, or default of
Borrower, or exercise by Bank of the right to accelerate the payment or the
maturity of principal and interest, or to exercise any option whatsoever
contained in this Agreement, the Loan Documents or any other agreement between
Borrower and Bank, or arising out of any contingency whatsoever, shall entitle
Bank to contract for, charge, collect or receive, in any event, interest
exceeding the Maximum Legal Rate; and in no event shall Borrower be obligated to
pay interest exceeding such Maximum Legal Rate; and all agreements, conditions
or stipulations, if any, that may in any event or contingency whatsoever operate
to bind, obligate or compel Borrower to pay a rate of interest exceeding the
Maximum Legal Rate, shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is contracted for, charged, collected or
received in excess of the Maximum Legal Rate ("EXCESS"), such Excess shall be,
first, applied to reduce the principal then unpaid under this Agreement; second,
applied pro rata to reduce all other of the Obligations then due; and third,
returned to Borrower, it being the intention of the parties hereto not to enter
into or cause at any time a usurious or otherwise illegal relationship. For the
purpose of determining whether or not any Excess has been contracted for,
charged, collected or received by Bank, Borrower and Bank shall, to the maximum
extent permitted under applicable law, (A) characterize any nonprincipal payment
as an expense, fee or premium rather than interest, (B) exclude voluntary
prepayments and the effects thereof, and (C) with respect to all interest at any
time contracted for, charged,
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collected or received by Bank in connection with this Agreement, amortize,
prorate, allocate and spread the same in equal parts, or otherwise as
appropriate, to ensure that, to the extent possible, no Excess exists during the
entire term of this Agreement; provided, however, that, if the Obligations are
paid and performed in full prior to the full contemplated term thereof, and if
the interest received by Bank for the actual period of existence thereof exceeds
the maximum permitted by applying the Maximum Legal Rate, Bank shall refund to
Borrower the amount of the Excess.
(c) If, prior to the repayment in full of the
Obligations, the applicable state or federal law is amended in the future to
allow a greater rate of interest to be charged under this Agreement or the Loan
Documents than is presently allowed by applicable state or federal law, then the
limitation of interest hereunder by the Maximum Legal Rate shall be increased to
such greater rate of interest, which increase shall be effective hereunder on
the effective date of such amendment, and all interest charges owing to Bank by
reason thereof, if any, shall be payable upon demand, if the Obligations are
then fully matured, or concurrently with the next payment of interest due under
the Obligations; provided, however, if the Obligations are fully paid and
discharged, no such interest charges shall be owing to Bank by reason of such
amendment.
2.3.4 PAYMENTS. Interest hereunder shall be due and
payable on each Payment Date. Borrower hereby authorizes Bank to debit any
accounts with Bank, including, without limitation, Account Number
_____________________ for payments of principal and interest due on the
Obligations and any other amounts owing by Borrower to Bank. Bank will notify
Borrower of all debits which Bank has made against Borrower's accounts. Any such
debits against Borrower's accounts in no way shall be deemed a set-off. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder.
2.3.5 COMPUTATION. All interest chargeable under the Loan
Documents shall be computed monthly in arrears on the basis of a three hundred
sixty (360) day year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an
Event of Default, Bank shall credit a wire transfer of funds, check or other
item of payment to such deposit account or Obligation as Borrower specifies.
After the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment, whether directed to
Borrower's deposit account with Bank or to the Obligations or otherwise, shall
be immediately applied to conditionally reduce Obligations, but shall not be
considered a payment in respect of the Obligations unless such payment is of
immediately available federal funds or unless and until such check or other item
of payment is honored when presented for payment. Notwithstanding anything to
the contrary contained herein, any wire transfer or payment received by Bank
after 12:00 noon Pacific time shall be deemed to have been received by Bank as
of the opening of business on the immediately following Business Day. Whenever
any payment to Bank under the
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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:
2.5.1 FACILITY FEE. A Facility Fee equal to Sixty
Thousand Dollars ($60,000), which fee shall be due on the Closing Date and shall
be fully earned and non-refundable;
2.5.2 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;
2.5.3 BANK EXPENSES. Upon demand from Bank, including,
without limitation, upon the date hereof, all Bank Expenses incurred through the
date hereof, including reasonable attorneys' fees and expenses and, after the
date hereof, all Bank Expenses, including reasonable attorneys' fees and
expenses, as and when they become due.
2.6 ADDITIONAL COSTS. In case any change in law, regulation,
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
2.6.1 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);
2.6.2 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
2.6.3 imposes upon Bank any other condition with respect
to its performance under this Agreement, and the result of any of the foregoing
is to increase the cost to Bank, reduce the income receivable by Bank or impose
any expense upon Bank with respect to any loans, Bank shall notify Borrower
thereof. Borrower agrees to pay to Bank the amount of such increase in cost,
reduction in income or additional expense as and when such cost, reduction or
expense is incurred or determined, upon presentation by Bank of a statement of
the amount and setting forth Bank's calculation thereof, all in reasonable
detail, which statement shall be deemed true and correct absent manifest error.
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2.7 TERM. Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to SECTION 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The
obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, prior to the Closing Date and
in form and substance satisfactory to Bank, the following:
3.1.1 this Agreement;
3.1.2 a certificate of the Secretary of Borrower with
respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
3.1.3 an intellectual property security agreement;
3.1.4 a warrant subscription agreement by and between the
Borrower, Bank, and certain stockholders named therein (the "WARRANT
SUBSCRIPTION AGREEMENT");
3.1.5 a warrant to purchase stock;
3.1.6 a registration rights agreement;
3.1.7 an opinion of Borrower's counsel, in form and
substance satisfactory to Bank;
3.1.8 a solvency certificate and notice to creditors in
form and substance satisfactory to Bank;
3.1.9 a subordination agreement subordinating the rights
of the parties hereunder to the rights of Bank under the Senior Loan Agreement;
3.1.10 evidence of the completion of an accounts
receivable audit with results satisfactory to Bank;
3.1.11 evidence that Borrower has received new equity
investments in an amount no less than One Million Dollars ($1,000,000) and
having rights, privileges and preferences satisfactory to Bank.
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3.1.12 evidence that the Asset Purchase Agreement ("ASSET
PURCHASE AGREEMENT") dated July 23, 1998, by and between Borrower and Ross
Technology, Inc., a Delaware corporation ("ROSS"), has closed in accordance with
the terms thereof without waiver of any of the conditions precedent contained
therein;
3.1.13 evidence satisfactory to Bank of Ross' consent to
the collateral assignment to Bank of all of Borrower's rights, title and
interest in, to and under the Asset Purchase Agreement;
3.1.14 financing statements covering the Collateral
(Forms UCC-1);
3.1.15 evidence of the completion of due diligence with
results satisfactory to Bank;
3.1.16 evidence of the release of any prior existing
security interest in Borrower's Collateral ;
3.1.17 insurance certificate;
3.1.18 payment of the fees and Bank Expenses then due
specified in SECTION 2.5 hereof;
3.1.19 payment by check of legal fees due and payable to
Cooley Godward; and
3.1.20 such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to
Bank a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except for liens incurred
pursuant to the Senior Loan Agreement, with the written permission of Bank or as
set forth in the Schedule, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof. Borrower acknowledges that Bank may place a "hold" on any
Deposit Account pledged as Collateral to secure the Obligations. Unless
otherwise agreed to in writing by Bank, notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
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4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower
shall from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and, as
of the Closing Date, 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
unless the failure to so qualify would not have a Material Adverse Effect.
Borrower further represents and warrants that from and after the Closing Date,
that Borrower and each Subsidiary is in good standing under the laws of its
state of incorporation and in any state in which the conduct of its business or
its ownership of property requires that it be qualified and licensed to business
unless the failure to so qualify would not have a Material Adverse Effect.
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 except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent and
the Loan Documents constitute an assignment Borrower is not in default under any
agreement to which it is a party or by which it is bound, which default could
have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts (as
defined in the Senior Loan Agreement) are bona fide existing obligations. The
service or property giving rise to such Eligible Accounts has been performed or
delivered to the account debtor or to the account debtor's agent for immediate
shipment to and unconditional acceptance by the account
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debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor whose accounts are included in any Borrowing
Base Certificate (as defined in the Senior Loan Agreement) as an Eligible
Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 INTELLECTUAL PROPERTY. Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers and suppliers in the ordinary course of business. Each
of the Patents is valid and enforceable, and no part of the Intellectual
Property Collateral has been judged invalid or unenforceable, in whole or in
part, and no claim has been made that any part of the Intellectual Property
Collateral violates the rights of any third party. Except for and upon the
filing with the United States Patent and Trademark Office with respect to the
Patents and Trademarks and the Register of Copyrights with respect to the
Copyrights and Mask Works necessary to perfect the security interests created
hereunder, and except as has been already made or obtained, no authorization,
approval or other action by, and no notice to or filing with, any United States
governmental authority or United States regulatory body is required either (i)
for the grant by Borrower of the security interest granted hereby or for the
execution, delivery or performance of Loan Documents by Borrower in the United
States or (ii) for the perfection in the United States or the exercise by Bank
of its rights and remedies hereunder.
5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as
disclosed in the Schedule, Borrower has not done business and will not without
at least thirty (30) days prior written notice to Bank do business under any
name other than that specified on the signature page hereof. The chief executive
office of Borrower is located at the address indicated in SECTION 10 hereof.
5.8 LITIGATION. Except as set forth in the Schedule, there are
no actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
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5.10 SOLVENCY. The fair saleable value of Borrower's assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; the Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement; and Borrower is able to pay its
debts (including trade debts) as they mature.
5.11 REGULATORY COMPLIANCE. Borrower and each Subsidiary has
met the minimum funding requirements of section 302 of ERISA with respect to any
Plan. No event has occurred resulting from Borrower's failure to comply with
ERISA that is reasonably likely to result in Borrower's incurring any liability
that could have a Material Adverse Effect. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940. Borrower is not engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve System).
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.12 ENVIRONMENTAL CONDITION. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release, or other disposition of hazardous waste or
hazardous substances into the environment.
5.13 TAXES. Borrower and each Subsidiary has filed or caused
to be filed all tax returns required to be filed on a timely basis, and has
paid, or has made adequate provision for the payment of, all taxes reflected
therein.
5.14 SUBSIDIARIES. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
5.15 GOVERNMENT CONSENTS. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of
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Borrower's business as currently conducted unless the failure to obtain such
consents, approvals or authorizations is not reasonably likely to cause a
Material Adverse Effect.
5.16 FULL DISCLOSURE. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading at the time such statements were made.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of section 302
of ERISA with respect to any Plan. Borrower shall comply, and shall cause each
Subsidiary to comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, noncompliance with which could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower
shall deliver to Bank: (a) as soon as available, but in any event within thirty
(30) days after the end of each month, a company prepared consolidated balance
sheet and income statement covering Borrower's consolidated operations during
such period, in a form and certified by an officer of Borrower reasonably
acceptable to Bank; (b) as soon as available, but in any event within one
hundred and twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank; (c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission; (d)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
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($100,000) or more; (e) prompt notice of any material change in the composition
of the Intellectual Property Collateral, including, but not limited to, any
subsequent ownership right of the Borrower in or to any Copyright, Patent or
Trademark not specified in any intellectual property security agreement between
Borrower and Bank or knowledge of an event that materially adversely effects the
value of the Intellectual Property Collateral; and (f) such annual budgets,
sales projections, operating plans or other financial information as Bank may
reasonably request from time to time; provided, however, that in the event that
Borrower has repaid all outstanding Obligations and Bank no longer has any
commitment to make a Credit Extension hereunder, Borrower shall comply with (a)
through (f) above for so long as Bank shall hold warrants to purchase Borrower's
stock or securities of Borrower issued pursuant to such warrants.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more often than once every year 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 which exceed and of all
disputes and claims, where the return, recovery, dispute or claim involves more
than Two Hundred Thousand Dollars ($200,000).
6.5 TAXES. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Bank, on demand, appropriate certificates attesting
to the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is (i) contested in good faith
by appropriate proceedings , (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 INSURANCE.
6.6.1 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
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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.
6.6.2 All such policies of insurance shall be in such
form, with such companies, and in such amounts as are reasonably satisfactory to
Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. At Bank's request, Borrower shall deliver to Bank certified copies of
such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option of
Bank, be payable to Bank to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. With one exception of payroll and
benefit accounts, Borrower shall maintain its principal depository and operating
accounts with Bank.
6.8 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
6.8.1 Borrower shall register or cause to be registered
(to the extent not already registered) with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, those
intellectual property rights listed on Exhibits A, B and C to the Intellectual
Property Security Agreement delivered to Bank by Borrower in connection with
this Agreement within thirty (30) days of the date of this Agreement. Borrower
shall register or cause to be registered with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, those
additional intellectual property rights developed or acquired by Borrower from
time to time in connection with any product prior to the sale or licensing of
such product to any third party, including without limitation revisions or
additions to the intellectual property rights listed on such Exhibits A, B and C
except to the extent that (i) Borrower, in its commercially reasonable judgment,
determines that such registration is unnecessary to protect its intellectual
property rights; and (ii) such registration has not been requested by Bank in
its commercially reasonable discretion.
6.8.2 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.
6.8.3 Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents, Copyrights, and Mask
Works, (ii) use its best efforts to detect infringements of the Trademarks,
Patents, Copyrights and Mask Works and promptly advise Bank in writing of
material infringements detected and (iii) not allow any Trademarks, Patents,
Copyrights, or Mask Works to be abandoned, forfeited or dedicated to the public
without the written consent of Bank, which shall not be unreasonably withheld,
unless Bank determines that reasonable business practices suggest that
abandonment is appropriate.
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6.8.4 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 6.8 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 6.8.
6.9 FURTHER ASSURANCES. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit
Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following without Bank's prior
written consent:
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 material part of its business or property, other than
Transfers: (i) of inventory in the ordinary course of business, (ii) of
non-exclusive licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business; (iii) that
constitute payment of normal and usual operating expenses in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS
LOCATIONS. Engage in any business, or permit any of its Subsidiaries to engage
in any business, other than the businesses currently engaged in by Borrower and
any business substantially similar or related thereto (or incidental thereto),
or suffer a change in Borrower's ownership or management. Borrower will not,
without at least thirty (30) days prior written notification to Bank, relocate
its chief executive office or add any new offices or business locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person other than
in connection with the acquisition of certain assets of Ross.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
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7.6 DISTRIBUTIONS. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9 INTELLECTUAL PROPERTY AGREEMENTS. Borrower shall not
permit the inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts, except to the extent that such provisions are necessary in Borrower's
exercise of its reasonable business judgement.
7.10 SUBORDINATED DEBT. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11 INVENTORY. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of any
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in SECTION 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.12 COMPLIANCE. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose; fail to meet the minimum funding requirements of section 302 of ERISA
with respect to the Plan; permit a Reportable Event as defined in section 4043
of ERISA or Prohibited Transaction as defined in section 406 ERISA, to occur;
fail to comply with the Federal Fair Labor Standards Act or violate any other
law or regulation, which violation could have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral; or permit any of its Subsidiaries to do any of the foregoing.
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8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any
of the Obligations and has failed to cure such default within five (5) days
thereafter.
8.2 COVENANT DEFAULT. If Borrower fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and Bank
and as to any default under such other term, provision, condition, covenant or
agreement that can be cured, has failed to cure such default within ten (10)
days after the occurrence thereof; provided, however, that if the default cannot
by its nature be cured within the ten (10) day period or cannot after diligent
attempts by Borrower be cured within such ten (10) day period, and such default
is likely to be cured within a reasonable time, then Borrower shall have an
additional reasonable period (which shall not in any case exceed thirty (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to have cured such default shall not be deemed an Event of Default
(provided that no Advances will be required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material
adverse change in the business, operations, or condition (financial or
otherwise) of Borrower, or (ii) is a material impairment of the prospect of
repayment of any portion of the Obligations or (iii) is a material impairment of
the value or priority of Bank's security interests in the Collateral;
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)
or such action or event could not have a Material Adverse Effect;
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
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not dismissed or stayed within 30 days (provided that no Advances will be made
prior to the dismissal of such Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement
to which Borrower is a party with a third party or parties that could have a
Material Adverse Effect;
8.7 SUBORDINATED DEBT. (a) 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; or (b) if an Event of
Default occurs under the Subordination Agreement;
8.8 JUDGMENTS. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Two Hundred
Thousand Dollars ($200,000) 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);
8.9 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate or writing delivered to Bank by Borrower
or any Person acting on Borrower's behalf pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan Document; or
8.10 SENIOR DEBT. If an Event of Default occurs in the Senior
Loan Agreement and the effect of such Event of Default is the acceleration of
the Obligations owed by Borrower to Bank therein.
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:
9.1.1 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);
9.1.2 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;
9.1.3 Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
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<PAGE> 25
9.1.4 Without notice to or demand upon Borrower, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge in order
to exercise any of Bank's rights or remedies provided herein, at law, in equity,
or otherwise;
9.1.5 Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
9.1.6 Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this SECTION 9.1,
to use, without charge, the Intellectual Property Collateral, including, without
limitation, Borrower's labels, patents, copyrights, mask works, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and, in connection with Bank's exercise of its rights under this SECTION 9.1,
Borrower's rights under all licenses and all franchise agreements shall inure to
Bank's benefit;
9.1.7 Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
9.1.8 Bank may credit bid and purchase at any public
sale, or at any private sale as permitted by law; and
9.1.9 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
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<PAGE> 26
may come into Bank's possession; (c) sign Borrower's name on any invoice or bill
of lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to modify, in its
sole discretion, any intellectual property security agreement entered into
between Borrower and Bank without first obtaining Borrower's approval of or
signature to such modification by amending Exhibit A, Exhibit B, Exhibit C, and
Exhibit D, thereof, as appropriate, to include reference to any right, title or
interest in any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower
after the execution hereof or to delete any reference to any right, title or
interest in any Copyrights, Patents, Trademarks, or Mask Works in which Borrower
no longer has or claims any right, title or interest; (g) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (h) to transfer the Intellectual Property Collateral
into the name of Bank or a third party to the extent permitted under the
California Uniform Commercial Code provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
SECTION 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact, and each and every one of
Bank's rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed and Bank's
obligation to provide Advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Committed Revolving Line as Bank deems necessary to protect
Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in SECTION 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any amounts
so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable rate
hereinabove provided, and shall be secured by the Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
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
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<PAGE> 27
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower BridgePoint Technical Manufacturing Corporation
4007 Commercial Center Drive
Austin, TX 78744
Attn: Joe David Jones
Fax: 512/434-4750
If to Bank
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Attn:
----------------------------
FAX:
----------------------------
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.
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<PAGE> 28
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of each
of the parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall , indemnify ,defend,
protect and hold harmless Bank and its officers, employees, and agents against:
(a) all obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses in any way suffered, incurred, or
paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under the Loan
Documents, or otherwise (including without limitation reasonable attorneys fees
and expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the
performance of all obligations set forth in this Agreement.
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<PAGE> 29
12.4 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot
be amended or terminated except by a writing signed by Borrower and Bank. All
prior agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 SURVIVAL. All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in SECTION 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have.
12.8 CONFIDENTIALITY. In handling any confidential information
Bank shall exercise the same degree of care that it exercises with respect to
its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank, and (v)
as Bank may deem appropriate in connection with the exercise of any remedies
hereunder. Confidential information hereunder shall not include information that
either: (a) is in the public domain or in the knowledge or possession of Bank
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank through no fault of Bank; or (b) is disclosed to Bank by a third party,
provided Bank does not have actual knowledge that such third party is prohibited
from disclosing such information.
[INTENTIONALLY BLANK]
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<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
BORROWER BRIDGEPOINT TECHNICAL
MANUFACTURING CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
BANK
-------------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
[Senior Subordinated Loan and Security Agreement]
<PAGE> 31
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, 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
[Senior Subordinated Loan and Security Agreement]
<PAGE> 32
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all
claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
[Senior Subordinated Loan and Security Agreement]
