AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this “
Agreement ”) dated as of the Effective Date among
SILICON VALLEY BANK , a California corporation (“
Bank ”), AIRSPAN NETWORKS INC. , a corporation
formed under the laws of the State of Washington (“ US
Borrower ”), and AIRSPAN COMMUNICATIONS LIMITED, a
company registered under the laws of England and Wales under
company number 03501881 (“ UK Borrower ”; US
Borrower and UK Borrower hereinafter referred to individually and
collectively, jointly and severally, as “ Borrower
”), provides the terms on which Bank shall lend to Borrower
and Borrower shall repay Bank. The parties agree as
follows:
Recitals.
A . Bank
and Borrower have entered into that certain Loan and Security
Agreement dated as of August 1, 2006 (as amended from time to time,
the “ Prior Loan Agreement ”).
B . Borrower
is currently in default of the Loan Agreement for failing to comply
with the financial covenant set forth in Section 6.9(a) (Tangible
Net Worth) of the Loan Agreement for the fiscal quarter ending
December 31, 2008 (the “ Existing Default
”).
C . Borrower
has requested, and Bank has agreed, to waive the Existing
Default and replace, amend and restate the Prior Loan Agreement in
its entirety. Bank and Borrower hereby agree that the
Prior Loan Agreement is amended and restated in its entirety as
follows:
1.
ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement
shall be construed following GAAP. Calculations and
determinations must be made following GAAP. Capitalized
terms not otherwise defined in this Agreement shall have the
meanings set forth in Section 13. All other terms
contained in this Agreement, unless otherwise indicated, shall have
the meaning provided by the Code to the extent such terms are
defined therein.
2.
LOAN AND TERMS OF PAYMENT
2.1.
Promise to Pay . Borrower hereby unconditionally
promises to pay Bank the outstanding principal amount of all Credit
Extensions and accrued and unpaid interest thereon as and when due
in accordance with this Agreement.
2.1.1. Revolving
Advances.
(a)
Availability . Subject to the terms and
conditions of this Agreement, Bank will make Advances to Borrower
up to the Availability Amount.
(b)
Termination; Repayment . The Revolving Line
terminates on the Revolving Line Maturity Date, when the principal
amount of all Advances, the unpaid interest thereon, and all other
Obligations relating to the Revolving Line shall be immediately due
and payable.
2.1.2. Letters of
Credit Sublimit
(a) As
part of the Revolving Line, Bank shall issue or have issued Letters
of Credit for Borrower’s account. The face amount
of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) may not exceed
the lesser of (i) Five Million Dollars ($5,000,000) minus the FX
Reserve or (ii) the Availability Amount. Such aggregate
amounts utilized hereunder shall at all times reduce the amount
otherwise available for Advances under the Revolving
Line. If, on the Revolving Line Maturity Date, there are
any outstanding Letters of Credit, then on such date Borrower shall
provide to Bank cash collateral in an amount equal to one hundred
percent (100%) of the face amount of all such Letters of Credit, to
secure all of the Obligations relating to said Letters of Credit
and pay all interest, fees, costs and expenses incurred by Bank in
connection therewith. All Letters of Credit shall be in
form and substance acceptable to Bank in its sole discretion and
shall be subject to the terms and conditions of Bank’s
standard Application and Letter of Credit Agreement (the “
Letter of Credit Application ”). Borrower
agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request. Prior
to or simultaneously with the opening of each Letter of Credit,
Borrower shall pay to Bank a letter of credit fee in an amount
equal to one percent (1.0%) per annum of the face amount of the
Letter of Credit.
(b) The
obligation of Borrower to immediately reimburse Bank for drawings
made under Letters of Credit shall be absolute, unconditional, and
irrevocable, and shall be performed strictly in accordance with the
terms of this Agreement, such Letters of Credit, and the Letter of
Credit Application.
(c) Borrower
may request that Bank issue a Letter of Credit payable in a Foreign
Currency. If a demand for payment is made under any such
Letter of Credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus fees and
charges in connection therewith such as wire, cable, SWIFT or
similar charges) in Dollars at the then-prevailing rate of exchange
in San Francisco, California, for sales of the Foreign Currency for
transfer to the country issuing such Foreign Currency.
(d) To
guard against fluctuations in currency exchange rates, upon the
issuance of any Letter of Credit payable in a Foreign Currency,
Bank shall create a reserve (the “Letter of Credit
Reserve” ) under the Revolving Line in an amount equal to
ten percent (10%) of the face amount of such Letter of
Credit. The amount of the Letter of Credit Reserve may
be adjusted by Bank from time to time to account for fluctuations
in the exchange rate; provided, however, that Bank shall give
Borrower at least five (5) Business Days prior written notice of
any adjustment to the Letter of Credit Reserve requirement which
would require the Letter of Credit Reserve to exceed (10%) of the
face amount of a Letter of Credit. The availability of
funds under the Revolving Line shall be reduced by the amount of
such Letter of Credit Reserve for as long as such Letter of Credit
remains outstanding.
2.1.3. Foreign
Exchange Sublimit . As part of the Revolving Line,
Borrower may enter into foreign exchange contracts with Bank under
which Borrower commits to purchase from or sell to Bank a specific
amount of Foreign Currency (each, a “ FX Forward
Contract ”) on a specified date (the “
Settlement Date ”). FX Forward Contracts
shall have a Settlement Date of at least one (1) FX Business Day
after the contract date and shall be subject to a reserve of ten
percent (10%) of each outstanding FX Forward Contract in a maximum
aggregate amount equal to the lesser of (i) Five Million Dollars
($5,000,000), minus the face amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit), and
minus an amount equal to all Letter of Credit Reserves combined or
(ii) the Availability Amount (the “ FX Reserve
”). The aggregate amount of FX Forward Contracts
at any one time may not exceed ten (10) times the amount of the FX
Reserve.
2.1.4. Cash
Management Services Sublimit . Borrower may use up
to the lesser of (i) One Million Dollars ($1,000,000) or (ii) the
Availability Amount (the “ Cash Management Services
Sublimit ”) of the Revolving Line for Bank’s cash
management services which may include merchant services, direct
deposit of payroll, business credit card, and check cashing
services identified in Bank’s various cash management
services agreements (collectively, the “ Cash Management
Services ”). Any amounts Bank pays on behalf
of Borrower or any amounts that are not paid by Borrower for any
Cash Management Services will be treated as Advances under the
Revolving Line and will accrue interest at the interest rate
applicable to Advances.
2.2.
Overadvances . If at any time or for any reason
the total of all outstanding Advances and all other monetary
Obligations exceeds the Availability Amount (an
“Overadvance ”), Borrower shall pay the amount
of the excess to Bank, without notice or demand, within two (2)
Business Days after the occurrence of such
Overadvance. Without limiting Borrower’s
obligation to repay to Bank the amount of any Overadvance, Borrower
agrees to pay Bank interest on the outstanding amount of any
Overadvance that has been outstanding for more than three (3)
Business Days, on demand, at the Default Rate.
2.3.
Payment of Interest on the Credit Extensions .
(a)
Interest Rate ; Advances . Subject to
Section 2.3(b), the amounts outstanding under the Revolving Line
(which, for purposes of clarification, do not include the FX
Reserve or any undrawn Letters of Credit or Letter of Credit
Reserves) shall accrue interest at a per annum rate equal to the
greater of (i) the Prime Rate plus four percentage points (4%) or
(ii) eight percent (8%).
(b)
Default Rate . Immediately upon the occurrence and during
the continuance of an Event of Default, Obligations shall bear
interest at a rate per annum which is three
percentage points (3%) above the rate effective immediately before
the Event of Default (the “ Default Rate
”). Payment or acceptance of the increased
interest rate provided in this Section 2.3(b) is not a
permitted alternative to timely payment and shall not constitute a
waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of Bank.
(c)
Adjustment to Interest Rate . Changes to the
interest rate of any Credit Extension based on changes to the Prime
Rate shall be effective on the effective date of any change to the
Prime Rate and to the extent of any such change.
(d)
360-Day Year . Interest shall be computed on the
basis of a 360-day year for the actual number of days
elapsed.
(e)
Debit of Accounts . Bank may debit any of
Borrower’s deposit accounts, including the Designated Deposit
Account, for principal and interest payments or any other amounts
Borrower owes Bank when due. These debits shall not
constitute a set-off.
(f)
Payment; Interest Computation; Float Charge
. Interest is payable monthly on the last calendar day
of each month. In computing interest on the Obligations,
all payments received after 3:00 p.m. Eastern time on any day shall
be deemed received on the next Business Day. Bank shall
be entitled to charge Borrower a “float” charge in an
amount equal to two (2) Business Days interest, at the interest
rate applicable to the Advances, on all payments received by
Bank. The float charge for each month shall be payable
on the last day of the month. Bank shall not, however,
be required to credit Borrower's account for the amount of any item
of payment which is unsatisfactory to Bank in its good faith
business judgment, and Bank may charge Borrower's Designated
Deposit Account for the amount of any item of payment which is
returned to Bank unpaid.
2.4.
Fees . Borrower shall pay to Bank:
(a)
Extension Fee . A fully earned, non-refundable
extension fee of Twenty Two Thousand Five Hundred Dollars ($22,500)
which shall be paid on the Effective Date;
(b)
Letter of Credit Fee . Bank’s customary
fees and expenses for the issuance or renewal of Letters of Credit,
upon the issuance or renewal of such Letter of Credit by Bank,
provided that the Letter of Credit fee shall in no event exceed the
one (1) percent fee referenced in Section 2.1.2(a)
hereof;
(c)
Termination Fee . A termination fee as provided
under Section 4.1 hereof;
(d)
Collateral Monitoring Fee . A monthly collateral
monitoring fee of One Thousand Two Hundred Fifty Dollars ($1,250),
payable in arrears on the last day of each month (prorated for any
partial month with respect to the Effective Date or the termination
of this Agreement, whether by acceleration of the obligations
following an Event of Default by the Borrower under Section 4.1
below, or on the Revolving Line Maturity Date);
(e)
Bank Expenses . All Bank Expenses (including
reasonable attorneys’ fees and expenses, plus expenses, for
documentation and negotiation of this Agreement) incurred through
and after the Effective Date, when due; and
(f)
Restructuring Fee . A fully earned,
non-refundable extension fee of Twenty Thousand Dollars ($20,000)
which shall be paid on the Effective Date.
3.1.
Conditions Precedent to Initial Advance
. Bank’s obligation to make the initial Advance is
subject to the condition precedent that Bank shall have received,
in form and substance satisfactory to Bank, such documents, and
completion of such other matters, as Bank may reasonably deem
necessary or appropriate, including, without limitation:
(a) Borrower
shall have delivered duly executed original signatures to this
Agreement;
(b) Borrower
shall have delivered its Operating Documents and a good standing
certificate of US Borrower certified by the Secretary of State of
the State of Washington as of a date no earlier than
thirty (30) days prior to the Effective Date;
(c) Bank
shall have received certified copies, dated as of a recent date, of
financing statement searches, as Bank shall reasonably request,
accompanied by written evidence (including any UCC termination
statements) that the Liens indicated in any such financing
statements either constitute Permitted Liens or have been or, in
connection with the initial Advance, will be terminated or
released;
(d) Borrower
shall have delivered evidence satisfactory to Bank that the
insurance policies required by Section 6.7 hereof are in full force
and effect, together with appropriate evidence showing loss payable
and/or additional insured clauses or endorsements in favor of Bank;
and
(e) Borrower
shall have paid the fees and Bank Expenses then due as specified in
Section 2.4 hereof.
3.2.
Conditions Precedent to all Credit Extensions
. Bank’s obligations to make each Credit
Extension, including the initial Credit Extension, is subject to
the following:
(a) except
as otherwise provided in Section 3.4, timely receipt of an executed
Payment/Advance Form;
(b) the
representations and warranties in Section 5 shall be true in all
material respects on the date of the Payment/Advance Form and on
each Funding Date; provided, however, that such materiality
qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in
the text thereof; and provided, further that those representations
and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such
date, and no Default or Event of Default shall have occurred and be
continuing or result from the Credit Extension. Each
Credit Extension is Borrower’s representation and warranty on
that date that the representations and warranties in Section 5
remain true in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a
specific date shall be true, accurate and complete in all material
respects as of such date; and
(c) in
Bank’s sole discretion, there has not been a Material Adverse
Change.
3.3.
Covenant to Deliver. Borrower agrees to deliver
to Bank each item required to be delivered to Bank under this
Agreement as a condition to any Credit
Extension. Borrower expressly agrees that the extension
of a Credit Extension prior to the receipt by Bank of any such item
shall not constitute a waiver by Bank of Borrower’s
obligation to deliver such item, and any such extension in the
absence of a required item shall be in Bank’s sole
discretion.
3.4.
Procedures for Borrowing. Subject to the prior
satisfaction of all other applicable conditions to the making of an
Advance set forth in this Agreement, to obtain an Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by electronic
mail, facsimile, or telephone by 3:00 p.m. Eastern time on the
Funding Date of the Advance. Together with such
notification, Borrower must promptly deliver to Bank by electronic
mail or facsimile a completed Transaction Report executed by a
Responsible Officer or his or her designee. Bank shall
credit Advances to the Designated Deposit Account. Bank
may make Advances under this Agreement based on instructions from a
Responsible Officer or his or her designee or without instructions
if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a
person whom Bank believes is a Responsible Officer or
designee.
4.
CREATION OF SECURITY INTEREST
4.1.
Grant of Security Interest; Termination of Agreement and
Security Interest; Termination Fee. US Borrower
hereby grants Bank, to secure the payment and performance in full
of all of the Obligations, a continuing security interest in, and
pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and
products thereof. US Borrower represents, warrants, and
covenants that the security interest granted herein is and shall at
all times continue to be a first priority perfected security
interest in the Collateral (subject only to Permitted Liens that
may have superior priority to Bank’s Lien under this
Agreement). If US Borrower shall acquire a commercial
tort claim, US Borrower shall promptly notify Bank in a writing
signed by Borrower of the general details thereof and grant to Bank
in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to
be in form and substance reasonably satisfactory to
Bank.
This Agreement may be terminated prior to the
Revolving Line Maturity Date by Borrower, effective three (3)
Business Days after written notice of termination is given to Bank
or if Bank’s obligation to fund Credit Extensions terminates
pursuant to the terms of Section
2.1.1(b). Notwithstanding any such termination,
Bank’s lien and security interest in the Collateral shall
continue until US Borrower fully satisfies its
Obligations. If this Agreement is terminated prior to
the Revolving Line Maturity Date at Borrower’s election or at
Bank’s election due to the occurrence and continuance of an
Event of Default, US Borrower shall pay to Bank, in addition to the
payment of any other expenses or fees then-owing, a termination fee
in an amount equal to one percent (1.0%) of the Revolving Line;
provided, however, that no termination fee shall be charged if the
credit facility hereunder terminates on the Revolving Line Maturity
Date or is replaced with a new facility from Silicon Valley Bank or
another division thereof. Upon payment in full of the
Obligations and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall release its liens and
security interests in the Collateral and all rights therein shall
revert to US Borrower.
4.2.
Authorization to File Financing Statements. US
Borrower hereby authorizes Bank to file financing statements,
without notice to US Borrower, with all appropriate jurisdictions
to perfect or protect Bank’s interest or rights hereunder,
including a notice that any disposition of the Collateral, by
either Borrower or any other Person, shall be deemed to violate the
rights of Bank under the Code.
5.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as
follows:
5.1.
Due Organization and Authorization . US Borrower
is duly existing and in good standing as a Registered Organization
only in the State of Washington and UK Borrower is a private
limited company duly incorporated and validly existing under the
laws of England and Wales, and each is qualified and licensed to do
business and is in good standing in any jurisdiction in which the
conduct of their business or their ownership of property requires
that they be qualified except where the failure to do so could not
reasonably be expected to have a material adverse effect on
Borrower’s business. In connection with this
Agreement, US Borrower has delivered to Bank a completed
certificate substantially in the form attached hereto as
Exhibit C signed by US Borrower, entitled
“Perfection Certificate”. US Borrower
represents and warrants to Bank that (a) US Borrower’s exact
legal name is that indicated on the Perfection Certificate and on
the signature page hereof; (b) US Borrower is an organization
of the type and is organized in the jurisdiction set forth in the
Perfection Certificate; (c) the Perfection Certificate accurately
sets forth US Borrower’s organizational identification number
or accurately states that Borrower has none; (d) the Perfection
Certificate accurately sets forth US Borrower’s place of
business, or, if more than one, its chief executive office as well
as US Borrower’s mailing address (if different than its chief
executive office); (e) US Borrower (and each of its
predecessors) has not, in the past five (5) years, changed its
state of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all
other information set forth on the Perfection Certificate
pertaining to US Borrower and each of its Subsidiaries is accurate
and complete. If US Borrower is not now a Registered
Organization but later becomes one, Borrower shall promptly notify
Bank of such occurrence and provide Bank with US Borrower’s
organizational identification number.
The execution, delivery and performance of the
Loan Documents have been duly authorized, and do not conflict with
Borrower’s organizational documents, nor constitute an event
of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to
which it is a party or by which it is bound in which the default
could reasonably be expected to have a material adverse effect on
Borrower’s business.
5.2.
Collateral . US Borrower has good title to the
Collateral, free of Liens except Permitted
Liens. Borrower has no deposit account other than the
deposit accounts with Bank.
The Collateral is not in the possession of any
third party bailee (such as a warehouse). Except as
hereafter disclosed to Bank in writing by US Borrower, none of the
components of the Collateral shall be maintained at locations other
than as provided in the Perfection Certificate. In the
event that US Borrower, after the date hereof, intends to store or
otherwise deliver any portion of the Collateral to a bailee, then
US Borrower will first receive the written consent of Bank and such
bailee must acknowledge in writing that the bailee is holding such
Collateral for the benefit of Bank.
All Net Inventory is in all material respects of
good and marketable quality, free from material defects.
Borrower is the sole owner of its Intellectual
Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business. Each
Patent is valid and enforceable and no part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in
part, and to the best of Borrower’s knowledge, no claim has
been made that any part of the Intellectual Property violates the
rights of any third party except to the extent such claim could not
reasonably be expected to have a material adverse effect on
Borrower’s business.
Except as noted on the Perfection Certificate,
US Borrower is not a party to, nor is bound by, any license or
other agreement with respect to which Borrower is the licensee that
prohibits or otherwise restricts Borrower from granting a security
interest in Borrower’s interest in such license or agreement
or any other property. Borrower shall provide written
notice to Bank within ten (10) days of entering or becoming bound
by any such license or agreement which is reasonably likely to have
a material impact on Borrower’s business or financial
condition (other than over-the-counter software that is
commercially available to the public). Borrower shall
take such steps as Bank requests to obtain the consent of, or
waiver by, any person whose consent or waiver is necessary for all
such licenses or contract rights to be deemed
“Collateral” and for Bank to have a security interest
in it that might otherwise be restricted or prohibited by law or by
the terms of any such license or agreement (such consent or
authorization may include a licensor’s agreement to a
contingent assignment of the license to Bank if Bank determines
that is necessary in its good faith judgment), whether now existing
or entered into in the future.
5.3. Accounts
Receivable.
(a) For
each Account with respect to which Advances are requested, on the
date each Advance is requested and made, such Account shall be an
Eligible Account.
(b) All
statements made and all unpaid balances appearing in all invoices,
instruments and other documents evidencing the Accounts are and
shall be true and correct and all such invoices, instruments and
other documents, and all of Borrower's Books are genuine and in all
respects what they purport to be. All sales and other
transactions underlying or giving rise to each Account shall comply
in all material respects with all applicable laws and governmental
rules and regulations. Borrower has no knowledge of any
actual or imminent Insolvency Proceeding of any Account Debtor
whose accounts are an Eligible Account in any Transaction
Report. To the best of Borrower’s knowledge, all
signatures and endorsements on all documents, instruments, and
agreements relating to all Accounts are genuine, and all such
documents, instruments and agreements are legally enforceable in
accordance with their terms.
5.4.
Litigation . Except as disclosed on the
Perfection Certification, there are no actions or proceedings
pending or, to the knowledge of the Responsible Officers,
threatened in writing by or against Borrower or any of its
Subsidiaries involving more than Two Hundred Fifty Thousand Dollars
($250,000).
5.5.
No Material Deviation in Financial Statements.
All consolidated financial statements for Borrower and
any of its Subsidiaries delivered to Bank fairly present in all
material respects Borrower’s consolidated financial condition
and Borrower’s consolidated results of
operations. There has not been any material
deterioration in Borrower’s consolidated financial condition
since the date of the most recent financial statements submitted to
Bank.
5.6.
Solvency . The fair salable value of
Borrower’s assets (including goodwill minus disposition
costs) exceeds the fair value of its liabilities; Borrower is not
left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade
debts) as they mature.
5.7.
Regulatory Compliance. US Borrower is not an
“investment company” or a company
“controlled” by an “investment company”
under the Investment Company Act. US Borrower is not
engaged as one of its important activities in extending credit for
margin stock (under Regulations T and U of the Federal Reserve
Board of Governors). US Borrower has complied in all
material respects with the Federal Fair Labor Standards
Act. Borrower has not violated any laws, ordinances or
rules, the violation of which could reasonably be expected to have
a material adverse effect on its business. None of
Borrower’s or any of its Subsidiaries’ properties or
assets has been used by Borrower or any Subsidiary or, to the best
of Borrower’s knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous
substance other than legally. Borrower and each of its
Subsidiaries have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given
all notices to, all government authorities that are necessary to
continue their respective business as currently
conducted.
5.8.
Subsidiaries; Investments. Borrower does not own
any stock, partnership interest or other equity securities except
for Permitted Investments.
5.9.
Tax Returns and Payments; Pension Contributions
. Borrower has timely filed all required tax returns and
reports, and Borrower has timely paid all foreign, federal, state,
governmental and local taxes, assessments, deposits and
contributions owed by Borrower. Borrower may defer
payment of any contested taxes, provided that Borrower (a) in good
faith contests its obligation to pay the taxes by appropriate
proceedings promptly and diligently instituted and conducted, (b)
notifies Bank in writing of the commencement of, and any material
development in, the proceedings, (c) posts bonds or takes any other
steps required to prevent the governmental authority levying such
contested taxes from obtaining a Lien upon any of the Collateral
that is other than a “Permitted
Lien”. Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which
could result in additional taxes becoming due and payable by
Borrower. Borrower has paid all amounts necessary to
fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not
withdrawn from participation in, and has not permitted partial or
complete termination of, or permitted the occurrence of any other
event with respect to, any such plan which could reasonably be
expected to result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency in any part of the
world.
5.10. Use of
Proceeds . Borrower shall use the proceeds of the
Credit Extensions solely as working capital, and to fund its
general business requirements and not for personal, family,
household or agricultural purposes.
5.11. Full
Disclosure. No written representation, warranty or
other statement of Borrower in any certificate or written statement
given to Bank, as of the date such representation, warranty, or
other statement was made, taken together with all such written
certificates and written statements given to Bank, contains any
untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained in the certificates
or statements not misleading (it being recognized by Bank that the
projections and forecasts provided by Borrower in good faith and
based upon reasonable assumptions are not viewed as facts and that
actual results during the period or periods covered by such
projections and forecasts may differ from the projected or
forecasted results).
Borrower shall do all of the
following:
6.1.
Government Compliance . Borrower shall maintain
its legal existence and good standing in its jurisdiction of
formation and each jurisdiction in which the nature of its business
requires them to be so qualified, except where the failure to take
such action would not reasonably be expected to have a material
adverse effect on Borrower’s business or operations, taken as
a whole; provided , that Borrower may not permit its
qualification to do business in the jurisdiction of its chief
executive office to terminate or lapse; and provided ,
further , that this Section 6.1 shall not be construed to
prohibit any other transaction that is otherwise permitted in
Section 7 of this Agreement.
Borrower shall comply with all laws, ordinances
and regulations to which it is subject, noncompliance with which
could have a material adverse effect on Borrower’s
business.
6.2.
Financial Statements, Reports, Certificates.
Borrower shall provide Bank with the following:
(a) a
Transaction Report weekly and upon delivery of each request for an
Advance;
(b) within
thirty (30) days after the end of each month, deliver to Bank (A)
monthly accounts receivable agings, aged by invoice date, (B)
monthly accounts payable agings, aged by invoice date, and (C)
monthly reconciliations of accounts receivable agings (aged by
invoice date), including (i) KKS receivable aging and extended term
reporting, and general ledger and (ii) Datatell receivable aging
and extended term reporting, and general ledger;
(c) as
soon as available, and in any event within thirty (30) days after
the end of each month (other than January), monthly unaudited
financial statements on a consolidated and consolidating
basis;
(d) within
thirty (30) days after the end of each month (other than January) a
monthly Compliance Certificate signed by a Responsible Officer,
certifying that as of the end of such month, Borrower was in full
compliance with all of the terms and conditions of this Agreement,
and setting forth calculations showing compliance with the
financial covenants set forth in this Agreement and such other
information as Bank shall reasonably request, including, without
limitation, a statement that at the end of such month there were no
held checks;
(e) no
later than thirty (30) days prior to the end of each fiscal year of
Borrower, (A) annual operating budgets (including income
statements, balance sheets and cash flow statements, by month) for
the upcoming fiscal year of Borrower, and (B) annual financial
projections for the following fiscal year (on a quarterly basis) as
approved by Borrower’s board of directors, together with any
related business forecasts used in the preparation of such annual
financial projections;
(f) as
soon as available, and in any event within one hundred eighty (180)
days following the end of Borrower's fiscal year, annual financial
statements certified by, and with an unqualified opinion (other
than a qualification with respect to going concern) of, independent
certified public accountants acceptable to Bank (for clarification,
Grant Thornton LLP is deemed by Bank to be acceptable);
(g) as
soon as available, but no later than five (5) days after filing
with the Securities Exchange Commission, the US Borrower’s
10K, 10Q, and 8K reports together with a Compliance
Certificate;
(h) a
prompt 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 Two Hundred Fifty Thousand Dollars
($250,000) or more;
(i) prompt
written notice of (i) any material change in the composition of the
Intellectual Property, (ii) the registration of any Copyright,
including any subsequent ownership right of Borrower in or to any
Copyright, Patent or Trademark not shown in the IP Security
Agreement, or (iii) Borrower’s knowledge of an event
that materially adversely affects the value of the Intellectual
Property.
Borrower’s 10K, 10Q, and 8K reports
required to be delivered pursuant to Section 6.2(g) shall be deemed
to have been delivered on the date on which Borrower posts such
report or provides a link thereto on Borrower’s or another
website on the Internet; provided , that Borrower shall
provide paper copies to Bank of the Compliance Certificates
required by Section 6.2(g).
6.3. Accounts
Receivable.
(a)
Schedules and Documents Relating to Accounts .
Borrower shall deliver to Bank transaction reports and schedules of
collections, as provided in Section 6.2, on Bank’s standard
forms; provided, however, that Borrower’s failure to execute
and deliver the same shall not affect or limit Bank’s Lien
and other rights in all of Borrower’s Accounts, nor shall
Bank’s failure to advance or lend against a specific Account
affect or limit Bank’s Lien and other rights
therein. If requested by Bank, Borrower shall furnish
Bank with copies (or, at Bank’s request, originals to the
extent necessary or desirable to create or perfect Bank’s
Lien on Collateral) of all contracts, orders, invoices, and other
similar documents, and all shipping instructions, delivery
receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such
Accounts. In addition, Borrower shall deliver to Bank,
on its request, copies (or, at Bank’s request, originals to
the extent necessary or desirable to create or perfect Bank’s
Lien on Collateral) of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing
or securing any Accounts, in the same form as received, with all
necessary indorsements, and copies of all credit memos.
(b)
Disputes . Borrower shall promptly notify Bank of
all disputes or claims relating to Accounts to the extent such
disputes or claims involve amounts in excess $250,000 individually
or in the aggregate outstanding at any time. Borrower
may forgive (completely or partially), compromise, or settle any
Account for less than payment in full, or agree to do any of the
foregoing so long as (i) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business,
in arm’s-length transactions, and reports the same to Bank in
the regular reports provided to Bank; (ii) no Default or Event
of Default has occurred and is continuing; and (iii) after
taking into account all such discounts, settlements and
forgiveness, the total outstanding Advances will not exceed the
Availability Amount.
(c)
Collection of Accounts . Borrower shall have the
right to collect all Accounts unless and until a Default or an
Event of Default has occurred and is continuing. Whether
or not an Event of Default has occurred and is continuing, Borrower
shall hold all payments on, and proceeds of, Accounts in trust for
Bank, and Borrower shall immediately deliver all such payments and
proceeds to Bank in their original form, duly endorsed, to be
applied to the Obligations pursuant to the terms of Section 9.4
hereof. Bank may, in its good faith business judgment,
require that all proceeds of Domestic Accounts be deposited by US
Borrower into a lockbox account, or such other “blocked
account” as Bank may specify, pursuant to a blocked account
agreement in such form as Bank may specify in its good faith
business judgment, and Bank shall apply any proceeds in such
lockbox account to the balance of the outstanding
Obligations. Upon the occurrence and during the
continuance of an Event of Default, (i) Bank shall apply any
proceeds in such lockbox account to the balance of the outstanding
Obligations and (ii) UK Borrower shall deposit all proceeds of
Foreign Accounts into a lockbox account with the Royal Bank of
Scotland or another bank or financial institution satisfactory to
Bank (the “ UK Lockbox ”) pursuant to a blocked
account agreement in such form as Bank may specify in its good
faith business judgment. It will be considered an
immediate Event of Default if the UK Lockbox is not set-up and
operational on April 15, 2009.
(d)
Returns . Provided no Event of Default
has occurred and is continuing, if any Account Debtor returns any
Inventory to Borrower, Borrower shall promptly (i) determine
the reason for such return, (ii) issue a credit memorandum to
the Account Debtor in the appropriate amount, and
(iii) provide a copy of such credit memorandum to Bank, upon
request from Bank. In the event any attempted return
occurs after the occurrence and during the continuance of any Event
of Default, Borrower shall hold the returned Inventory in trust for
Bank, and promptly notify Bank of the return of the
Inventory.
(e)
Verification . Bank may, from time to
time, verify directly with the respective Account Debtors the
validity, amount and other matters relating to the Accounts, either
in the name of Borrower or Bank or such other name as Bank may
choose.
(f)
No Liability . Bank shall not be
responsible or liable for any shortage or discrepancy in, damage
to, or loss or destruction of, any goods, the sale or other
disposition of which gives rise to an Account, or for any error,
act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Account, or
for settling any Account in good faith for less than the full
amount thereof, nor shall Bank be deemed to be responsible for any
of Borrower's obligations under any contract or agreement giving
rise to an Account. Nothing herein shall, however,
relieve Bank from liability for its own gross negligence or willful
misconduct.
6.4.
Remittance of Proceeds. Except as otherwise
provided in Section 6.3(c), deliver, in kind, all proceeds arising
from the disposition of any Collateral to Bank in the original form
in which received by Borrower not later than five (5) Business Days
after receipt by Borrower, to be applied to the Obligations
pursuant to the terms of Section 9.4 hereof; provided that, if no
Default or Event of Default has occurred and is continuing,
Borrower shall not be obligated to remit to Bank the proceeds of
the sale of worn out or obsolete Equipment disposed of by Borrower
in good faith in an arm’s length transaction for an aggregate
purchase price of Two Hundred Fifty Thousand Dollars ($250,000) or
less (for all such transactions in any fiscal
year). Borrower agrees that it will not commingle
proceeds of Collateral with any of Borrower’s other funds or
property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for
Bank. Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this
Agreement.
6.5.
Taxes; Pensions . Timely file all required tax
returns and reports and timely pay all foreign, federal, state,
governmental and local taxes, assessments, deposits and
contributions owed by Borrower except for deferred payment of any
taxes contested pursuant to the terms of Section 5.9 hereof, and
pay all amounts necessary to fund all present pension, profit
sharing and deferred compensation plans in accordance with their
terms.
6.6.
Access to Collateral; Books and Records. So long
as an Event of Default has not occurred and is continuing, Bank, or
its agents, shall have the right to inspect the Collateral and the
right to audit and copy Borrower’s Books at reasonable times
not more than four (4) times per fiscal year, on three (3) Business
Days’ notice (provided that no such advance notice shall be
required after the occurrence and during the continuance of an
Event of Default); provided, however, that after the closing of a
Subsequent Financing in which Borrower receives, in the aggregate,
at least Twenty Million Dollars ($20,000,000) of net proceeds
(excluding any bridge debt financing except to the extent actually
converted to equity in Borrower) and so long as no Event of Default
has occurred and is continuing, then Bank, or its agents, shall
have the right to inspect the Collateral and the right to audit and
copy Borrower’s Books only two (2) times per year (rather
than four (4)), at reasonable times on five (5) Business
Days’ notice (provided that no such advance notice shall be
required after the occurrence and during the continuance of an
Event of Default). The foregoing inspections and audits
shall be at Borrower’s expense, and the charge therefor shall
be $750 per person per day (or, during the continuance of an Event
of Default, such higher amount as shall represent Bank’s
then-current standard charge for the same), plus reasonable
out-of-pocket expenses. In the event Borrower and Bank
schedule an audit more than ten (10) days in advance, and Borrower
cancels or seeks to reschedules the audit with less than ten (10)
days written notice to Bank, then (without limiting any of
Bank’s rights or remedies), Borrower shall pay Bank a fee of
$1,000 plus any out-of-pocket expenses incurred by Bank to
compensate Bank for the anticipated costs and expenses of the
cancellation or rescheduling. Borrower hereby
acknowledges that the first such audit will be conducted within
sixty (60) days after the execution of this Agreement.
6.7.
Insurance . Keep its business and the Collateral
insured for risks and in amounts standard for companies in
Borrower’s industry and location and as Bank may reasonably
request. Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to
Bank. All property policies shall have a lender’s
loss payable endorsement showing Bank as the sole lender loss payee
and waive subrogation against Bank, and all liability policies
shall show, or have endorsements showing, Bank as an additional
insured. All policies (or the loss payable and
additional insured endorsements) shall provide that the insurer
must give Bank at least twenty (20) days notice before canceling,
amending, or declining to renew its policy. At
Bank’s request, Borrower shall deliver certified copies of
policies and evidence of all premium payments. Proceeds
payable under any policy shall, at Bank’s option, be payable
to Bank on account of the Obligations. If Borrower fails
to obtain insurance as required under this Section 6.7 or to
pay any amount or furnish any required proof of payment to third
persons and Bank, Bank may make all or part of such payment or
obtain such insurance policies required in this Section 6.7, and
take any action under the policies Bank deems prudent.
(a) Maintain
(i) all of its primary depository and investment accounts in the
United States with Bank or Bank’s Affiliates, (ii)
unrestricted cash and Investments of not less than seventy-five
percent (75%) of the aggregate consolidated unrestricted cash and
Investments of Borrower and its Subsidiaries, and (iii) from and
after April 15, 2009, its primary depository and investment
accounts in the United Kingdom with Royal Bank of Scotland or such
other institution as Bank agrees to in writing.
(b) Provide
Bank five (5) days prior written notice before establishing any
Collateral Account at or with any bank or financial institution
other than Bank or its Affiliates. In addition, for each
Collateral Account that Borrower at any time maintains, Borrower
shall cause the applicable bank or financial institution (other
than Bank) at or with which any Collateral Account is maintained
(but in each case only to the extent such bank or financial
institution is located in the United States) to execute and deliver
a Control Agreement or other appropriate instrument with respect to
such Collateral Account to perfect Bank’s Lien in such
Collateral Account in accordance with the terms
hereunder. The provisions of the previous sentence shall
not apply to deposit accounts exclusively used for payroll, payroll
taxes and other employee wage and benefit payments to or for the
benefit of Borrower’s employees and identified to Bank by
Borrower as such.
6.9.
Financial Covenants. Borrower shall maintain at
all times, to be tested as of the last day of each quarter, unless
otherwise noted, on a consolidated basis with respect to US
Borrower and UK Borrower:
(a)
Tangible Net Worth . A Tangible Net Worth of not
less than the sum of (i) fifty percent (50%) of quarterly Net
Income after the Second Supplemental Closing Date (but not to be
decreased by fifty percent (50%) of quarterly consolidated net
loss, if any), (ii) fifty percent (50%) of the proceeds received by
Borrower from the sale of US Borrower’s capital stock after
the Second Supplemental Closing Date (other than pursuant to the
Borrower’s Employee Stock Purchase Plan or Borrower’s
existing stock option plans), (iii) fifty percent (50%) of the
principal amount of Subordinated Debt incurred by Borrower after
the Second Supplemental Closing Date, plus an amount equal to (A)
for the fiscal quarter ending June 30, 2008 and as of the last day
of each fiscal quarter thereafter through the fiscal quarter ending
December 31, 2008, at least Thirty Million Dollars ($30,000,000),
(B) for the fiscal quarter ending March 31, 2009, at least Eighteen
Million Dollars ($18,000,000), (C) for the fiscal quarter ending
June 30, 2009, at least Fourteen Million Dollars ($14,000,000), (D)
for the fiscal quarter ending September 30, 2009, at least Thirteen
Million Dollars ($13,000,000), and (E) for the fiscal quarter
ending December 31, 2009 and as of the last day of each fiscal
quarter thereafter, at least Twelve Million Dollars ($12,000,000);
and
(b)
Minimum Adjusted Quick Ratio . An Adjusted Quick
Ratio of at least 1.00 to 1.00 as of the last day of each
month.
6.10.
Protection and Registration of Intellectual Property Rights
. Borrower shall: (a) protect, defend and
maintain the validity and enforceability of its intellectual
property; (b) promptly advise Bank in writing of material
infringements of its intellectual property; and (c) not allow any
intellectual property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without
Bank’s written consent. If Borrower decides to
register any copyrights or mask works in the United States
Copyright Office, Borrower shall: (x) provide Bank with at least
fifteen (15) days prior written notice of its intent to register
such copyrights or mask works together with a copy of the
application it intends to file with the United States Copyright
Office (excluding exhibits thereto); (y) execute an intellectual
property security agreement or such other documents as Bank may
reasonably request to maintain the perfection and priority of
Bank’s security interest in the copyrights or mask works
intended to be registered with the United States Copyright Office;
and (z) record such intellectual property security agreement with
the United States Copyright Office contemporaneously with filing
the copyright or mask work application(s) with the United States
Copyright Office. Borrower shall promptly provide to
Bank a copy of the application(s) filed with the United States
Copyright Office together with evidence of the recording of the
intellectual property security agreement necessary for Bank to
maintain the perfection and priority of its security interest in
such copyrights or mask works. Borrower shall provide
written notice to Bank of any application filed by Borrower in the
United States Patent and Trademark Office for a patent or to
register a trademark or service mark within 30 days after any such
filing.
6.11.
Litigation Cooperation . From the date hereof and
continuing through the termination of this Agreement, make
available to Bank, without expense to Bank, Borrower and its
officers, employees and agents and Borrower's books and records, to
the extent that Bank may deem them reasonably necessary to
prosecute or defend any third-party suit or proceeding instituted
by or against Bank with respect to any Collateral or relating to
Borrower.
6.12. Further
Assurances . Borrower shall execute any further
instruments and take further action as Bank reasonably requests to
perfect or continue Bank’s Lien in the Collateral or to
effect the purposes of this Agreement.
6.13. Foreign
Exchange Business . Borrower shall allow Bank to bid
on all of Borrower’s foreign exchange contracts
Borrower shall not do any of the following
without Bank’s prior written consent:
7.1.
Dispositions . Convey, sell, lease, transfer or
otherwise dispose of (collectively “ Transfer ”)
all or any part of its business or property, except for:
(i) of Inventory in the ordinary course of business; (ii) of
worn-out or obsolete Equipment; (iii) excess Inventory in
connection with that certain Purchase Contract dated April 14,
2005, as amended, between Borrower and Yozan, Inc., provided that
the aggregate sales price of such excess Inventory does not exceed
$2,000,000; (iv) other excess Inventory not included in Section
7.1(iii) above provided that the aggregate sales price (calculated
at book value) of such other excess Inventory does not exceed
$250,000; (v) dispositions in connection with Permitted Liens and
Permitted Investments; (vi) of non-exclusive licenses for the
use of the property of Borrower in the ordinary course of business;
(vii) Transfers to another Borrower; and (viii) Transfers to any
Subsidiaries of Borrower not to exceed Two Hundred Fifty Thousand
Dollars ($250,000) in the aggregate in any calendar
year.
7.2.
Changes in Business,
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