Exhibit
10.38
LOAN AND SECURITY
AGREEMENT
THIS LOAN AND SECURITY
AGREEMENT (this “ Agreement ”) dated
as of May 6, 2008 (the “ Effective Date ”)
between SILICON VALLEY BANK , a California corporation with
a loan production office located at One Newton Executive Park,
Suite 200, 2221 Washington Street, Newton, Massachusetts 02462
(“ Bank ”), and NMS COMMUNICATIONS
CORPORATION , a Delaware corporation (“ Borrower
”), provides the terms on which Bank shall lend to Borrower
and Borrower shall repay Bank. The parties agree as
follows:
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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.
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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 shall make Advances not exceeding the
Availability Amount. Amounts borrowed under the Revolving
Line may be repaid and, prior to the Revolving Line Maturity Date,
reborrowed, subject to the applicable terms and conditions
precedent herein.
(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 Six Million Dollars ($6,000,000.00), inclusive of
Credit Extensions relating to Sections 2.1.1, 2.1.3 and
2.1.4. 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 105% of the face amount of all such Letters of Credit plus all
interest, fees, and costs due or to become due in connection
therewith (as estimated by Bank in its reasonable business
judgment), to secure all of the Obligations relating to said
Letters of Credit. 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. Borrower further
agrees to be bound by the regulations and interpretations of the
issuer of any Letters of Credit guarantied by Bank and opened for
Borrower’s account or by Bank’s interpretations of any
Letter of Credit issued by Bank for Borrower’s account, and
Borrower understands and agrees that Bank shall not be liable for
any error, negligence, or mistake, whether of omission or
commission, in following Borrower’s instructions or those
contained in the Letters of Credit or any modifications,
amendments, or supplements thereto.
(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. 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 Six Million Dollars ($6,000,000.00) (the
“ FX Reserve ”), inclusive of Credit Extensions
relating to Sections 2.1.1, 2.1.2 and 2.1.4. The aggregate
amount of FX Forward Contracts at any one time may not exceed ten
(10) times the amount of the FX Reserve. The amount
otherwise available for Credit Extensions under the Revolving Line
shall be reduced by an amount equal to ten percent (10%) of each
outstanding FX Forward Contract. Any amounts needed to fully
reimburse Bank will be treated as Advances under the Revolving Line
and will accrue interest at the interest rate applicable to
Advances.
2.1.4
Cash Management Services Sublimit . Borrower may use up
to Six Million Dollars ($6,000,000.00) (the “ Cash
Management Services Sublimit ”), inclusive of Credit
Extensions relating to Sections 2.1.1, 2.1.2 and 2.1.3 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 ”). The dollar
amount of any Cash Management Services provided under this sublimit
will reduce the amount otherwise available under the Revolving
Line. Any amounts used or reserved by Borrower for any Cash
Management Services will reduce the amount otherwise available for
Credit Extensions under the Revolving Line. Any amounts Bank
pays on behalf of 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, the Credit Extensions
outstanding under Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed the
lesser of either (a) the Revolving Line or (b) the
Borrowing Base, Borrower shall immediately pay to Bank in cash such
excess. Notwithstanding the foregoing, if at any time during
any Non-Formula Period, the Credit Extensions outstanding under
Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed the Non-Formula
Amount (an “ Overadvance ”), then, within
fifteen (15) days of the date of any such Overadvance (the “
Overadvance Cure Period ”), Borrower shall
(a) make payments to Bank and/or deposit unrestricted cash
with Bank in an amount sufficient to cure the Overadvance, or
(b) provide Bank with a Borrowing Base Certificate which
evidences that Borrower has Eligible Accounts equal to at least one
hundred twenty-five percent (125%) of the aggregate amount of the
Credit Extensions (not merely the Overadvance) which are
outstanding under Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4.
Borrower may not have more than one (1) Overadvance Cure
Period during each rolling thirty (30) day period. The
failure of Borrower to comply with the provision in the immediately
preceding sentence shall result in an immediate Event of Default
for which there shall be no grace or cure period.
2.3
Payment of Interest on the Credit Extensions .
(a)
Interest Rate . Subject to Section 2.3(b), the
principal amount outstanding under the Revolving Line shall accrue
interest at a floating per annum rate equal to the Prime Rate,
which interest shall be payable monthly in arrears in accordance
with Section 2.3(f) below.
(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 four percentage points 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.
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(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 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)
Payments . Unless otherwise provided, interest is
payable monthly on the first (1 st ) calendar cay of
each month. Payments of principal and/or interest received
after 12:00 noon Eastern time are considered received at the
opening of business on the next Business Day. When a payment
is due on a day that is not a Business Day, the payment is due the
next Business Day and additional fees or interest, as applicable,
shall continue to accrue.
2.4
Early Termination . This Agreement may be terminated
prior to the Revolving Line Maturity Date as follows: (i) by
Borrower, effective three Business Days after written notice of
termination is given to Bank; or (ii) by Bank at any time
after the occurrence of an Event of Default, without notice,
effective immediately. If this Agreement is terminated
(A) by Bank in accordance with clause (ii) in the
foregoing sentence, or (B) by Borrower for any reason,
Borrower shall pay to Bank a termination fee in an amount equal to
one percent (1.0%) of the Revolving Line (the “Early
Termination Fee”). The Early Termination Fee shall be
due and payable on the effective date of such termination and
thereafter shall bear interest at a rate equal to the highest rate
applicable to any of the Obligations. Notwithstanding the
foregoing, Bank agrees to waive the Early Termination Fee if Bank
agrees to refinance and redocument this Agreement under another
division of Bank (in its sole and exclusive discretion) prior to
the Revolving Line Maturity Date.
2.5
Fees . Borrower shall pay to Bank:
(a)
Commitment Fee . A non-refundable commitment fee of
Twenty-Two Thousand Five Hundred Dollars ($22,500.00) was
previously fully earned upon Borrower’s execution of the term
sheet and shall be due and payable 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, each anniversary of the issuance, and the renewal of such
Letter of Credit;
(c)
Unused Revolving Line Facility Fee . A fee (the
“Unused Revolving Line Facility Fee”), payable
quarterly, in arrears, on a calendar year basis, in an amount equal
to one-half of one percent (0.50%) per annum of the average unused
portion of the Revolving Line, as determined by Bank.
Borrower shall not be entitled to any credit, rebate or repayment
of any Unused Revolving Line Facility Fee previously earned by Bank
pursuant to this Section notwithstanding any termination of
the Agreement or the suspension or termination of Bank’s
obligation to make loans and advances hereunder;
(d)
Early Termination Fee . The Early Termination Fee,
when due and payable hereunder;
(e)
Bank Expenses . All Bank Expenses incurred through and
after the Effective Date, when due.
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CONDITIONS OF
LOANS
3.1
Conditions Precedent to Initial Credit Extension .
Bank’s obligation to make the initial Credit Extension 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)
Duly executed original signatures to the Loan Documents to which it
is a party;
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(b)
Borrower shall have delivered its Operating Documents and a good
standing certificate of Borrower and Guarantor certified by the
Secretary of State of the State of Delaware as of a date no earlier
than thirty (30) days prior to the Effective Date;
(c)
Duly executed original signatures to the completed Borrowing
Resolutions for Borrower;
(d)
With respect to both Borrower and Guarantor, Bank shall have
received certified copies, dated as of a recent date, of financing
statement searches, as Bank shall request, accompanied by written
evidence (including any Code termination statements) that the Liens
indicated in any such financing statements either constitute
Permitted Liens or have been or, in connection with the initial
Credit Extension, will be terminated or released;
(e)
unconditional guaranty by the Guarantor;
(f)
security agreement by the Guarantor;
(g)
Borrower shall have delivered a legal opinion of Borrower’s
and each Guarantor’s counsel dated as of the Effective Date
together with the duly executed original signatures thereto;
(h)
Borrower shall have delivered evidence satisfactory to Bank that
the insurance policies required by Section 6.5 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
(i)
Borrower shall have paid the fees and Bank Expenses then due as
specified in Section 2.5 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,
accurate and complete in all material respects on the date of the
Payment/Advance Form and on the Funding Date of each Credit
Extension; 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 any material
impairment in the general affairs, senior management, results of
operation, financial condition or the prospect of repayment of the
Obligations, nor has there been any material adverse deviation by
Borrower from the most recent business plan of Borrower presented
to and accepted by Bank.
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 (other
than Advances under Sections 2.1.2 or 2.1.4), Borrower shall notify
Bank (which notice shall be irrevocable) by electronic mail,
facsimile, or
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telephone by 12:00 noon Eastern time on the
Funding Date of the Advance. Together with any such
electronic or facsimile notification, Borrower shall deliver to
Bank by electronic mail or facsimile a completed Payment/Advance
Form executed by a Responsible Officer or his or her
designee. Bank may rely on any telephone notice given by a
person whom Bank believes is a Responsible Officer or
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.
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CREATION OF SECURITY INTEREST
4.1
Grant of Security Interest . 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. 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
Borrower shall acquire a commercial tort claim, 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.
If
this Agreement is terminated, Bank’s Lien in the Collateral
shall terminate when the Obligations (other than inchoate indemnity
obligations) are repaid in full in cash. Upon payment in full
in cash of the Obligations (other than inchoate indemnity
obligations) and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall, at Borrower’s
sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower.
4.2
Authorization to File Financing Statements . Borrower
hereby authorizes Bank to file financing statements, without notice
to 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.
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REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as
follows:
5.1
Due Organization and Authorization . Borrower and each of
its Subsidiaries, if any, are duly existing and in good standing,
as Registered Organizations in their respective jurisdictions of
formation and are qualified and licensed to do business and are 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, Borrower has
delivered to Bank a completed perfection certificate signed by
Borrower (the “Perfection Certificate”). Borrower
represents and warrants to Bank that (a) Borrower’s
exact legal name is that indicated on the Perfection Certificate
and on the signature page hereof; (b) 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 Borrower’s organizational
identification number or accurately states that Borrower has none;
(d) the Perfection Certificate accurately sets forth
Borrower’s place of business, or, if more than one, its chief
executive office as well as Borrower’s mailing address (if
different than its chief executive office); (e) Borrower (and
each of its predecessors) has not, in the past five (5) years,
changed its jurisdiction 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 Borrower and each of its Subsidiaries is
accurate and complete. If Borrower is not now a Registered
Organization but later becomes one, Borrower shall promptly notify
Bank of such occurrence and provide Bank with 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 have a material
adverse effect on Borrower’s business.
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5.2
Collateral . Borrower has good title to, has rights in,
and the power to transfer each item of the Collateral upon which it
purports to grant a Lien hereunder, free and clear of any and all
Liens except Permitted Liens. Borrower has no deposit
accounts other than the deposit accounts with Bank, the deposit
accounts, if any, described in the Perfection Certificate delivered
to Bank in connection herewith, or of which Borrower has given Bank
notice and taken such actions as are necessary to give Bank a
perfected security interest therein. The Accounts are bona
fide, existing obligations of the Account Debtors.
The
Collateral is not in the possession of any third party bailee (such
as a warehouse) except as otherwise provided in the Perfection
Certificate and except with respect to mobile equipment in
possession of employees with an aggregate value not exceeding Fifty
Thousand Dollars ($50,000.00). None of the components of the
Collateral shall be maintained at locations other than as provided
in the Perfection Certificate or as Borrower has given Bank notice
pursuant to Section 7.2, except for mobile equipment in
possession of employees with an aggregate value not exceeding Fifty
Thousand Dollars ($50,000.00). In the event that Borrower,
after the date hereof, intends to store or otherwise deliver any
portion of the Collateral to a bailee (except with respect to
mobile equipment in possession of employees with an aggregate value
not exceeding Fifty Thousand Dollars ($50,000.00)), then Borrower
will first receive the written consent of Bank and such bailee must
execute and deliver a bailee agreement in form and substance
satisfactory to Bank in its reasonable discretion.
All
Inventory is in all material respects of good and marketable
quality, free from material defects.
Except as noted on the Perfection Certificate,
Borrower is not a party to, nor is bound by, any material 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
reasonable business judgment), whether now existing or entered into
in the future.
5.3
Accounts Receivable . For any Eligible Account in any
Borrowing Base Certificate, all statements made and all unpaid
balances appearing in all invoices, instruments and other documents
evidencing such Eligible 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 Eligible 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 Borrowing Base Certificate. To
the best of Borrower’s knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating
to all Eligible Accounts are genuine, and all such documents,
instruments and agreements are legally enforceable in accordance
with their terms.
5.4
Litigation . Except as set forth on the Perfection
Certificate for Groove Mobile, Inc., 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 ($250,000.00).
5.5
No Material Deterioration 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 . Borrower is not an
“investment company” or a company
“controlled” by an “investment company”
under the Investment Company Act of 1940. Borrower is not
engaged as one of its
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important activities in extending credit for
margin stock (under Regulations T and U of the Federal Reserve
Board of Governors). 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 its 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 and its Subsidiaries have timely paid all foreign,
federal, state 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.
5.10
Use of Proceeds . Borrower shall use the proceeds of the
Credit Extensions solely as working capital, and not for personal,
family, household or agricultural purposes.
5.11
Excluded Entities . (a) The aggregate value of cash
and Cash Equivalents held by the Excluded Entities does not and
will not exceed, in the aggregate, Fifty Thousand Dollars
($50,000.00); and (b) the aggregate value of the tangible
property held by each individual Excluded Entity does not exceed,
in the aggregate, Two Hundred Thousand Dollars ($200,000.00) per
Excluded Entity.
5.12
Full Disclosure . No written representation, warranty or
other statement of Borrower in any certificate or written statement
given to Bank in connection with this Agreement, as of the date
such representations, warranties, or other statements were made,
taken together with all such written certificates and written
statements given to Bank in connection with this Agreement,
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, in light of the circumstances in which
they were made, 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).
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AFFIRMATIVE
COVENANTS
Borrower shall do all of the
following:
6.1
Government Compliance . Except as permitted under
Section 7.3, maintain its and all its Subsidiaries’
legal existence and good standing in their respective jurisdictions
of formation and maintain qualification in each jurisdiction in
which the failure to so qualify would reasonably be expected to
have a material adverse effect on Borrower’s business or
operations. Borrower shall comply, and have each Subsidiary
comply, with all laws, ordinances and regulations to which it is
subject, the noncompliance with which could have a material adverse
effect on Borrower’s business.
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6.2
Financial Statements, Reports, Certificates .
(a)
Deliver to Bank: (i) as soon as available, but no later
than thirty (30) days after the last day of each month in which
Obligations are outstanding or in which any Credit Extensions have
been requested (or, if no such Obligations are outstanding or
Credit Extensions are requested, within forty-five (45) days of the
end of the current fiscal quarter), a company prepared consolidated
and consolidating balance sheet, income statement and cash flow
statement covering Borrower’s consolidated operations during
the period certified by a Responsible Officer and in a form
acceptable to Bank; (ii) within five (5) days of
delivery, copies of all statements, reports and notices made
available to Borrower’s security holders or to any holders of
Subordinated Debt; (iii) within five (5) days of filing,
all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission or a link thereto on
Borrower’s or another website on the Internet; (iv) a
prompt report of any legal actions pending or threatened against
Borrower or any of its Subsidiaries that could result in damages or
costs to Borrower or any of its Subsidiaries of Two Hundred Fifty
Thousand Dollars ($250,000.00) or more; (v) as soon as
available, but no later than forty-five (45) days after the last
day of Borrower’s fiscal year, and in connection with any
amendments, Borrower’s financial projections for the
subsequent fiscal year as approved by Borrower’s board of
directors; and (vi) budgets, sales projections, operating
plans and other financial information reasonably requested by
Bank.
(b)
Within thirty (30) days after the last day of each month in which
Obligations are outstanding or in which any Credit Extensions have
been requested (or, if no such Obligations are outstanding or
Credit Extensions are requested, within forty-five (45) days of the
end of the current fiscal quarter), deliver to Bank a duly
completed Borrowing Base Certificate signed by a Responsible
Officer, with aged listings of accounts receivable (by invoice
date).
(c)
Within thirty (30) days after the last day of each month in which
Obligations are outstanding or in which any Credit Extensions have
been requested (or, if no such Obligations are outstanding or
Credit Extensions are requested, within forty-five (45) days of the
end of the current fiscal quarter), deliver to Bank with the
financial statements required to be delivered pursuant to
Section 6.2(a)(i) above, a duly completed Compliance
Certificate signed by a Responsible Officer setting forth
calculations showing compliance with the financial covenants set
forth in this Agreement.
(d)
Allow Bank to audit Borrower’s Collateral at Borrower’s
expense. Such audits shall be conducted no more often than
once every twelve (12) months unless a Default or an Event of
Default has occurred and is continuing. Borrower hereby
acknowledges that the first such audit shall be conducted within
one hundred twenty (120) days of the Effective Date.
6.3
Inventory; Returns . Keep all Inventory in good and
marketable condition, free from material defects. Returns and
allowances between Borrower and its Account Debtors shall follow
Borrower’s customary practices as they exist at the Effective
Date. Borrower must promptly notify Bank of all returns,
recoveries, disputes and claims that involve more than Two Hundred
Fifty Thousand Dollars ($250,000.00).
6.4
Taxes; Pensions . Make, and cause each of its
Subsidiaries to make, timely payment of all foreign, federal,
state, and local taxes or assessments (other than taxes and
assessments which Borrower is contesting pursuant to the terms of
Section 5.9 hereof) and shall deliver to Bank, on demand,
appropriate certificates attesting to such payments, and pay all
amounts necessary to fund all present pension, profit sharing and
deferred compensation plans in accordance with their terms.
6.5
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, it being agreed that the
insurance maintained by Borrower as of the Effective Date is
satisfactory to Bank as of the Effective Date. All property
policies shall have a loss payable endorsement showing Bank as the
sole 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
reasonable 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 6.5 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 6.5,
and take any action under the policies Bank deems prudent.
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6.6
Operating Accounts .
(a)
Maintain its and its Subsidiaries’ primary operating accounts
with Bank and Bank’s affiliates. In addition, Borrower
and its Subsidiaries shall maintain cash or securities with Bank
and Bank’s affiliates in an amount equal to a majority of
Borrower’s and such Subsidiaries’ cash or securities in
excess of that amount used for Borrower’s and such
Subsidiaries’ current operations. Subject to the
foregoing, Borrower and its Subsidiaries may maintain accounts with
financial institutions outside of the United States with financial
institutions other than Bank and Bank’s affiliates.
(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 or Guarantor 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 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, which Control
Agreement may not be terminated without the prior written consent
of Bank. 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.
6.7
Financial Covenants .
Borrower shall maintain at all times, on a
consolidated basis with respect to Borrower and its
Subsidiaries:
(a)
Adjusted Quick Ratio . For any month in which
Obligations are outstanding, or for any month in which a Credit
Extension is requested, Borrower shall maintain at all times, to be
tested as of the last day of each such month, an Adjusted Quick
Ratio of at least 1.5 to 1.0; provided, however, if the Adjusted
Quick Ratio is not tested for any month pursuant to this
Section 6.7(a), Borrower shall maintain at all times, to be
tested as of the last day of the current fiscal quarter, an
Adjusted Quick Ratio of at least 1.5 to 1.0.
(b)
Minimum Profit . Borrower shall have quarterly Profit
of at least: (i) ($2,000,000.00) as of the quarter ended
March 31, 2008; (ii) ($1,250,000.00) as of the quarter
ending June 30, 2008; (iii) $0.00 as of the quarter
ending September 30, 2008; and (iv) $1,750,000.00 as of
the quarter ending December 31, 2008 and as of the last day of
each quarter thereafter.
6.8
Protection of Intellectual Property Rights . Borrower
shall protect, defend and maintain the validity and enforceability
of its intellectual property material to Borrower’s
business.
6.9
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; provided, however, prior to the occurrence
and continuance of an Event of Default, such materials shall be
made available to Bank during regular business hours and upon
reasonable prior notice by Bank.
6.10
Natural MicroSystems Securities Corporation . Borrower
shall, within thirty (30) days of the Effective Date, deliver to
Bank evidence that it has dissolved its wholly-owned Subsidiary,
Natural MicroSystems Securities Corporation, and cause such
Subsidiary to transfer all of its property to Borrower.
6.11
Post-Closing Requirements . Borrower shall deliver to
Bank:
(a)
Within thirty (30) days of the Effective Date, a fully-executed
landlord’s consent, in form and substance acceptable to Bank
in Bank’s sole and absolute discretion, with respect to
Borrower’s location at 100 Crossing Blvd., Framingham,
Massachusetts 01702.
(b)
Within thirty (30) days of the Effective Date, a fully-executed
landlord’s consent for each Guarantor, in form and substance
acceptable to Bank in Bank’s sole and absolute discretion,
with respect to each Guarantor’s location at 100 Crossing
Blvd., Framingham, Massachusetts 01702.
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(c)
Within thirty (30) days of the Effective Date, a fully-executed
bailee’s waiver, in form and substance acceptable to Bank in
Bank’s sole and absolute discretion, with respect to
Borrower’s location at Plexus Service Corp., 55 Jewelers Park
Drive, Neenah, Wisconsin 54957.
(d)
Within ten (10) days of the Effective Date, insurance
certificates for Borrower and each Guarantor (on forms Acord 25 and
Acord 28), in form and substance acceptable to Bank in Bank’s
sole and absolute discretion.
6.12
Further Assurances . 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.
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NEGATIVE
COVENANTS
Borrower shall not do any of the following
without Bank’s prior written consent:
7.1
Dispositions . Convey, sell, lease, transfer, assign, or
otherwise dispose of (collectively “ Transfer
”), or permit any of its Subsidiaries to Transfer, all or any
part of its business or property, except for:
(a)
Transfers in the ordinary
course of business for reasonably equivalent
consideration;
(b)
Transfers of property in
connection with sale-leaseback transactions;
(c)
Transfers of property to
the extent such property is exchanged for credit against, or
proceeds are promptly applied to, the purchase price of other
property used or useful in the business of Borrower or its
Subsidiaries;
(d)
Transfers constituting
non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries in the ordinary course of
business and other non-perpetual licenses that may be exclusive in
some respects other than territory (and/or that may be exclusive as
to territory only in discreet geographical areas outside of the
United States), but that could not result in a legal transfer of
Borrower’s title in the licensed property;
(e)
Transfers otherwise
permitted by the Loan Documents;
(f)
sales or discounting of
delinquent accounts in the ordinary course of business;
(g)
Transfers associated with
the making or disposition of a Permitted Investment;
(h)
Transfers in connection
with a permitted acquisition of a portion of the assets or rights
acquired;
(i)
Transfers of cash to its
Subsidiaries for the ordinary and necessary current operating
expenses of such Subsidiaries in an amount not to exceed Two
Million Two Hundred Fifty Thousand Dollars ($2,250,000.00) per
fiscal quarter; and
(j)
Transfers of assets (other
than Accounts and Inventory (unless such Transfer is in the
ordinary course of Borrower’s business)) not otherwise
permitted in this Section 7.1, provided, that the aggregate
book value of all such Transfers by Borrower and its Subsidiaries,
together, shall not exceed in any fiscal year, Two Hundred Fifty
Thousand Dollars ($250,000.00) in the aggregate.
7.2
Changes in Business, Management, or Business Locations .
(a) Engage in or permit any of its Subsidiaries to engage in
any business other than the businesses currently engaged in by
Borrower and such Subsidiary, as applicable, or reasonably related
thereto; (b) liquidate or dissolve; or (c) have a change
in management such that a Key Person departs and a replacement
reasonably acceptable to Bank is not made within ninety (90) days
of such Key Person’s departure. Borrower shall not,
without at least thirty (30) days prior written notice to Bank:
(1) add any new offices or business locations, including
warehouses (unless each such new office or business location
contains less than Twenty-Five Thousand Dollars ($25,000) in
Borrower’s assets or property), (2) change its
jurisdiction of organization, (3) change its organizational
structure or type, (4) change its legal name, or
(5) change any organizational number (if any) assigned by its
jurisdiction of organization.
7.3
Mergers or Acquisitions . Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with any Person
other than with Borrower or any Subsidiary, or acquire, or permit
any of its
10
Subsidiaries to acquire, all or substantially
all of the capital stock or property of a Person other than
Borrower or any Subsidiary, except where no Event of Default has
occurred and is continuing or would result from such action during
the term of this Agreement, and (a) Borrower is the surviving
entity or (b) such merger or consolidation is a Transfer
otherwise permitted pursuant to Section 7.1
hereof.
7.4
Indebtedness . Create, incur, assume, or be liable for
any Indebtedness, or permit any Subsidiary to do so, other than
Permitted Indebtedness.
7.5
Encumbrance . Create, incur, or allow any Lien on any of
its property, or assign or convey any right to receive income,
including the sale of any Accounts, or permit any of its
Subsidiaries to do so, except for Permitted Liens, or permit any
Collateral not to be subject to the first priority secur
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