EXHIBIT 10.20
LOAN AND SECURITY AGREEMENT (EXIM
FACILITY)
THIS LOAN AND SECURITY AGREEMENT
(EXIM FACILITY) (this
“ Agreement ”), dated as of March 16, 2009 (the
“ Effective Date ”), between, on the one hand,
SILICON VALLEY BANK , a California corporation (“
Bank ”), and, on the other hand, ZTI Merger
Subsidiary III, Inc. , a Delaware corporation formerly known as
Zhone Technologies, Inc. (“ ZMS-III ”, and also
a “ Borrower ”), and Zhone Technologies,
Inc. , a Delaware corporation formerly known as Tellium, Inc.
(“Zhone ”, and also a “
Borrower”) (individually and collectively, and jointly
and severally, “ Borrower ”), provides the terms
on which Bank shall lend to Borrower and Borrower shall repay
Bank.
The parties agree as
follows:
A EXIM
PROVISIONS
A.1 Exim Guaranty.
Prior to the first Credit Extension
hereunder, Borrower shall cause the Export Import Bank of the
United States (the “Exim Bank”) to guarantee the Credit
Extensions made under this Agreement, pursuant to a Master
Guarantee Agreement, Loan Authorization Agreement and (to the
extent applicable) Delegated Authority Letter Agreement or Fast
Track Lender Agreement (collectively, the “Exim
Guaranty”), and Borrower shall cause the Exim Guaranty to be
in full force and effect throughout the term of this Agreement and
so long as any Credit Extensions hereunder are outstanding. If, for
any reason, the Exim Guaranty shall cease to be in full force and
effect, or if the Exim Bank declares in writing the Exim Guaranty
void or revokes in writing any obligations thereunder or denies in
writing liability thereunder, or if Borrower takes or permits any
action that could reasonably be expected to cause the Exim
Guarantee to not be in full force and effect, any such event shall
constitute an Event of Default under this Agreement. Nothing in any
confidentiality agreement in this Agreement or in any other
agreement shall restrict Bank’s right to make disclosures and
provide information to the Exim Bank in connection with the Exim
Guaranty. Bank shall have the right to take all actions required or
authorized in the Exim Guaranty.
A.2 Exim Borrower Agreement;
Costs. Borrower shall,
promptly upon Bank’s request from time to time (including
concurrently herewith), execute and deliver a Borrower Agreement,
in the form specified by the Exim Bank, in favor of Bank and the
Exim Bank, together with any amendments thereto which are required
by the Exim Bank (as so amended, the “Exim Borrower
Agreement”). This Agreement is subject to all of the terms
and conditions of the Exim Borrower Agreement, all of which are
hereby incorporated herein by this reference. Borrower expressly
agrees to perform all of the obligations and comply with all of the
affirmative and negative covenants and all other terms and
conditions set forth in the Exim Borrower Agreement, as though the
same were expressly set forth herein. In the event of any conflict
between the terms of the Exim Borrower Agreement and the other
terms of this Agreement or the Non-Exim Loan Agreement, whichever
terms are more restrictive shall apply. Borrower acknowledges and
agrees that it has received a copy of the Loan Authorization
Agreement which is referred to in the Exim Borrower Agreement.
Borrower agrees to be bound by the terms of the Loan Authorization
Agreement, including, without limitation, by any additions or
revisions made prior to its execution on behalf of Exim Bank. Upon
the execution of the Loan Authorization Agreement by Exim Bank and
Bank, it shall become an attachment to the Exim Borrower Agreement.
Borrower shall reimburse Bank for all fees and all out of pocket
costs and expenses incurred by Bank with respect to the Exim
Guaranty and the Exim Borrower Agreement, including without
limitation all facility fees and usage fees, and Bank is authorized
to debit Borrower’s account with Bank for such fees, costs
and expenses when paid by Bank.
A.3 Non-Exim Loan Agreement;
Cross-Collateralization; Cross-Default. Concurrently herewith, Bank and the Borrower are
entering into that certain other Second Amended and Restated Loan
and Security Agreement, dated as of the Effective Date (as amended,
restated, supplemented, or otherwise modified from time to time,
the “Non-Exim Loan Agreement”). Both this Agreement and
the Non-Exim Loan Agreement shall continue in full force and
effect, and all rights and remedies under this Agreement and the
Non-Exim Loan Agreement are cumulative. The term
“Obligations” as used in this Agreement and in the
Non-Exim Loan Agreement shall include without limitation the
obligation to pay when due all Credit Extensions made pursuant to
this Agreement (including all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit), the FX
Reserve, and amounts
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used for Cash Management Services, under this
Agreement) (collectively, the “Exim Loans”) and all
interest thereon and the obligation to pay when due all
“Credit Extensions” under (and as such term is defined
in) the Non-Exim Loan Agreement (including all outstanding
“Letters of Credit” (including drawn but unreimbursed
“Letters of Credit”), the “FX Reserve”, and
amounts used for “Cash Management Services”, under (and
as such terms are defined in) the Non-Exim Loan Agreement)
(collectively, the “Non-Exim Loans”) and all interest
thereon. Without limiting the generality of the foregoing, all
“Collateral” as defined in this Agreement and as
defined in the Non-Exim Loan Agreement shall secure all Exim Loans
and all Non-Exim Loans, and all other Obligations. Any Event of
Default under this Agreement shall also constitute an Event of
Default under the Non-Exim Loan Agreement, and any Event of Default
under the Non-Exim Loan Agreement shall also constitute an Event of
Default under this Agreement. In the event Bank assigns its rights
under this Agreement and/or under any note evidencing Exim Loans
and/or its rights under the Non-Exim Loan Agreement and/or under
any note evidencing Non-Exim Loans, to any third party, including
without limitation the Exim Bank, whether before or after the
occurrence of any Event of Default, Bank shall have the right (but
not any obligation), in its sole discretion, to allocate and
apportion Collateral to this Agreement, the Non-Exim Loan
Agreement, and/or any note(s) assigned and to specify the
priorities of the respective security interests in such Collateral
between itself and the assignee, all without consent of the
Borrower.
A.4 Exim Insurance.
If required by Bank, Borrower will
obtain, and pay when due all premiums with respect to, and
maintain, uninterrupted foreign credit insurance. In addition,
Borrower will execute in favor of Bank an assignment of proceeds of
any insurance policy obtained by Borrower and issued by Exim Bank
insuring against comprehensive commercial and political risk (the
“Exim Bank Insurance Policy”). The insurance proceeds
from the Exim Bank Insurance Policy assigned or paid to Bank will
be applied to the balance outstanding under this Agreement.
Borrower will immediately notify Bank and Exim Bank in writing upon
submission of any claim under the Exim Bank Insurance Policy, and
thereafter Bank will not be obligated to make any further Credit
Extensions hereunder to Borrower without prior approval from Exim
Bank.
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 all 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 and subject to deduction
of Reserves, Bank shall make Advances not exceeding the
Availability Amount; provided , however , that the
sum of all outstanding Advances (including (i) amounts used
hereunder for Cash Management Services, (ii) the aggregate
face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) under this Agreement, plus any
Letter of Credit Reserve under this Agreement, and (iii) the
FX Reduction Amount hereunder) under this Agreement, plus all
outstanding Non-Exim Loans under the Non-Exim Loan Agreement, shall
not exceed at any time the Maximum Combined Amount.
Amounts borrowed pursuant to this
Section may be repaid and, prior to the Revolving Line Maturity
Date, reborrowed, subject to the applicable terms and conditions
precedent herein. Advances and other Credit Extensions will be made
to each Borrower based on the Eligible Accounts of such Borrower,
subject to the Maximum Revolver Amount for all Advances and other
Credit Extensions hereunder to all Borrowers combined, and subject
to the Maximum Combined Amount for all Non-Exim Loans and Exim
Loans to all Borrowers combined.
(b) Allocation of Credit
Extensions and Reserves as Between this Agreement and the Non-Exim
Loan Agreement . Subject at all times to Section 5.10 of
this Agreement and Section 5.10 of the Non-Exim Loan Agreement
(with respect to permitted purposes of Exim Loans and Non-Exim
Loans), Bank and Borrower
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hereby acknowledge and agree that,
if and to the extent that there is both sufficient borrowing
availability in accordance with the terms and conditions of this
Agreement and sufficient borrowing availability in accordance with
the terms and conditions of the Non-Exim Loan Agreement, Bank shall
have the right (but not the obligation) to require that Advances
and other Credit Extensions will be made, and deemed outstanding,
first under this Agreement to the extent of borrowing availability
under this Agreement, before being made, and deemed outstanding,
under the Non-Exim Loan Agreement. Without limiting the generality
of the foregoing, Bank shall have the right (but not the
obligation) to allocate any Reserves (other than reserves in
respect of specific Credit Extensions under this Agreement,
specific “Credit Extensions” under the Non-Exim Loan
Agreement, or specific Accounts) first against borrowing
availability under this Agreement before being allocated against
borrowing availability under the Non-Exim Loan
Agreement.
(c) Termination of Revolving
Line; Repayment . Bank’s obligation under this Agreement
to provide Advances and other Credit Extensions in respect of the
Revolving Line shall terminate on the Revolving Line Maturity Date.
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 on the Revolving Line Maturity
Date.
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, as requested by Borrower. The aggregate
face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), plus any Letter of Credit
Reserves, under this Agreement may not exceed $7,000,000 ,
subject to the Combined LC Sublimit set forth in
Section 2.1.5(a). Such aggregate amounts utilized hereunder
shall at all times reduce the amount otherwise available for
Advances under the Revolving Line and the Combined 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 good faith 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. Without limiting the generality of the foregoing, any
payment by Bank under or in connection with a Letter of Credit
shall constitute an Advance hereunder on the date such payment is
made.
(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 pursuant to this
Agreement 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 and shall be subject to the
Combined LC Sublimit set forth in Section 2.1.5.
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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 $5,000,000 for all such FX
Forward Contracts pursuant to this Agreement (the “ FX
Reserve ”) and further subject to the Combined FX/CMS
Sublimit set forth in Section 2.1.5. Subject to the Combined
FX/CMS Sublimit set forth in Section 2.1.5, the aggregate
amount of FX Forward Contracts at any one time may not exceed ten
(10) times the amount of the FX Reserve. Subject to the
Combined FX/CMS Sublimit set forth in Section 2.1.5, the
amount otherwise available for Credit Extensions under the
Revolving Line hereunder shall be reduced by an amount equal to ten
percent (10%) of each outstanding FX Forward Contract (the
“ FX Reduction Amount ”). Any amounts needed to
fully reimburse Bank in respect of FX Forward Contracts entered
into pursuant to this Section 2.1.3 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 .
Subject to the Combined FX/CMS Sublimit set forth in
Section 2.1.5, Borrower may use up to $5,000,000 (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 provided pursuant to
this Section 2.1.4 will be treated as Advances under the
Revolving Line and will accrue interest at the interest rate
applicable to Advances.
2.1.5 Combined LC Sublimit; Combined FX/CMS
Sublimit .
(a) Anything herein to the contrary
notwithstanding, the sum of (i) the aggregate face amount of
outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) under this Agreement, plus any Letter of Credit
Reserve under this Agreement, plus (ii) the aggregate face
amount of outstanding “Letters of Credit” (including
drawn but unreimbursed “Letters of Credit”) under the
Non-Exim Loan Agreement, plus any “Letter of Credit
Reserve” under the Non-Exim Loan Agreement, shall not exceed
$7,000,000 (the “ Combined LC Sublimit
”).
(b) Anything herein to the contrary
notwithstanding, the sum of (i) the FX Reserve under this
Agreement, plus (ii) the “FX Reserve” under the
Non-Exim Loan Agreement, plus (iii) the aggregate amount of
Obligations in respect of Cash Management Services under this
Agreement, plus (iv) the aggregate amount of Obligations in
respect of “Cash Management Services” under the
Non-Exim Loan Agreement, shall not exceed $5,000,000 (the
“ Combined FX/CMS Sublimit ”).
2.2 Overadvances . If at any time or for any
reason any one or more of the following occurs (in any such case,
an “ Overadvance ”):
(a) the total of all outstanding Advances (including
(i) amounts used hereunder for Cash Management Services,
(ii) the aggregate face amount of outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) under
this Agreement, plus any Letter of Credit Reserve under this
Agreement, and (iii) the FX Reduction Amount hereunder)
exceeds the lesser of (1) the Maximum Revolver Amount or
(2) the Borrowing Base; or
(b) the sum of all outstanding Advances (including
(i) amounts used hereunder for Cash Management Services,
(ii) the aggregate face amount of outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) under
this Agreement, plus any Letter of Credit Reserve under this
Agreement, and (iii) the FX Reduction Amount hereunder) under
this Agreement, plus all outstanding Non-Exim Loans (and other
monetary “Obligations”) under the Non-Exim Loan
Agreement (including (iv) amounts used under the Non-Exim Loan
Agreement for “Cash Management Services”, (v) the
aggregate face amount of outstanding “Letters of
Credit” (including drawn but unreimbursed “Letters of
Credit”) under the Non-Exim Loan Agreement, plus any
“Letter of Credit Reserve” under the Non-Exim Loan
Agreement, and (vi) the “FX Reduction Amount”
under the Non-Exim Loan Agreement), exceeds the Maximum Combined
Amount; or
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(c) the sum of (i) the aggregate face amount of
outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) under this Agreement, plus any Letter of Credit
Reserve under this Agreement, plus (ii) the aggregate face
amount of outstanding “Letters of Credit” (including
drawn but unreimbursed “Letters of Credit”) under the
Non-Exim Loan Agreement, plus any “Letter of Credit
Reserve” under the Non-Exim Loan Agreement, exceeds the
Combined LC Sublimit; or
(d) the sum of (i) the FX Reduction Amount
under this Agreement, plus (ii) the “FX Reduction
Amount” under the Non-Exim Loan Agreement, plus
(iii) the aggregate amount of Obligations in respect of Cash
Management Services under this Agreement, plus (iv) the
aggregate amount of Obligations in respect of “Cash
Management Services” under the Non-Exim Loan Agreement,
exceeds the Combined FX/CMS Sublimit;
then, Borrower shall promptly pay to
Bank in cash such Overadvance within one Business Day following
notice thereof from Bank to Borrower. Without limiting
Borrower’s obligation to repay Bank any amount of the
Overadvance, Borrower agrees to pay Bank interest on the
outstanding amount of any Overadvance, on demand, at the Default
Rate.
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 per annum rate equal to
the sum of the Loan Margin plus the Prime Rate, provided that the
interest rate in effect on any day shall not be less than
6.50% per annum, which interest shall be payable
monthly.
As used herein, the term
“Loan Margin ” means, as of any date of
determination, 2.50 percentage points.
(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 which is
otherwise applicable to the Obligations (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 (i) principal and interest
payments, when due, or (ii) any other amounts Borrower owes
Bank, when due. These debits shall not constitute a
set-off.
(f) [reserved]
(g) 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 12:00 p.m. Pacific time on
any day shall be deemed received on the next Business Day. When the
payment of an Obligation is due on a day that is not a Business
Day, such payment shall be due the next Business Day and additional
fees or interest, as applicable, shall continue to accrue until
such Obligation is paid. In addition, 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 and
applied to outstanding Advances. Said float charge is not included
in interest for purposes of computing Minimum Monthly Interest (if
any) under this Agreement. The float charge for each month shall be
payable on the last day of such 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.
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2.4 Fees . Borrower shall pay to Bank:
(a) Combined Commitment Fee .
The combined commitment fee (fully earned on the Effective Date)
set forth in Section 2.4(a) of the Non-Exim Loan
Agreement.
(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 any such Letter of Credit by
Bank.
(c) [intentionally
omitted]
(d) Unused Combined Revolving
Line Facility Fee . The “Unused Combined Revolving Line
Facility Fee” set forth in Section 2.4(d) of the
Non-Exim Loan Agreement. Borrower shall not be entitled to any
credit, rebate or repayment of any Unused Combined Revolving Line
Facility Fee previously earned by Bank pursuant to this Section
notwithstanding any termination of the Agreement, or suspension or
termination of Bank’s obligation to make loans and advances
hereunder or under the Non-Exim Loan Agreement .
(e) Combined Collateral
Monitoring Fee . With respect to any “Qualified CMF
Month” (as defined in the Non-Exim Loan Agreement), the
monthly combined collateral monitoring fee set forth in
Section 2.4(e) of the Non-Exim Loan Agreement.
(f) Bank Expenses . All Bank
Expenses (including reasonable attorneys’ fees and expenses
for documentation and negotiation of this Agreement and the other
Loan Documents) incurred through and after the Effective Date, when
due.
3 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
Borrower shall consent to or have delivered, 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 and Guarantor shall
have delivered duly executed original signatures to the Loan
Documents to which it is a party, including this Agreement, the
Non-Exim Loan Agreement, the Exim Borrower Agreement (including the
Economic Impact Certification, attached both as Annex B to the Exim
Borrower Agreement and as Annex E to the Master Guaranty Agreement
comprising the Exim Guaranty), the IP Security Agreement, the
Guaranty, the Guarantor Security Agreement, the Intercompany
Subordination Agreement, and one or more Control Agreements
relative to all Collateral Accounts maintained with any affiliate
of Bank;
(b) certified copies, dated as of a
recent date, of financing statement searches with respect to each
of Borrower and Guarantor, as Bank shall 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 will be terminated or
released;
(c) Borrower and Guarantor shall
have delivered duly executed original signatures to one or more
Control Agreements relative to all Collateral Accounts maintained
with any institution (other than Bank or any affiliate of Bank),
except to the extent expressly not required under
Section 6.8(b);
(d) Borrower and Guarantor shall
have delivered: (i) its Operating Documents; and
(ii) good standing certificates with respect to each Borrower
and each Guarantor issued by the applicable Secretary of State
(and, if separate, the state tax authority) of the jurisdiction of
organization of each such Borrower or Guarantor and the applicable
Secretary of State (and, if separate, the state tax authority) of
the jurisdictions (other than the applicable jurisdiction of
organization of such Borrower or such Guarantor) in which such
Borrower’s or such Guarantor’s failure to be duly
qualified or licensed would constitute a Material Adverse Change ,
in each case, as of a date no earlier than thirty (30) days
prior to the Effective Date; provided , however ,
that with respect to Xybridge
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Technologies, Inc., a Texas
corporation (which is not in good standing with the Texas
Comptroller of Public Accounts as of February 20, 2009),
Borrower shall deliver to Bank, no later than 60 days following the
Effective Date, evidence of Xybridge Technologies, Inc.’s
good standing with the Texas Comptroller of Public Accounts as of a
date on or after the Effective Date;
(e) Borrower shall have delivered
duly executed original signatures to the completed Borrowing
Resolutions for Borrower, and Guarantor shall have delivered
executed original complete certified resolutions and incumbency
certificate of Guarantor;
(f) With respect to each Borrower
and each Guarantor, Bank shall have received certified copies,
dated as of a recent date, of financing statement searches, as Bank
shall request, reflecting Bank’s financing statements filed
of record with respect to Bank’s Liens, and accompanied by
written evidence (including any UCC termination statements) that
the Liens (other than the Bank’s Liens) indicated in any
financing statements either constitute Permitted Liens or have been
or, in connection with the initial Credit Extension, will be
terminated or released;
(g) Each Borrower shall have
delivered a separate Perfection Certificate executed by such
Borrower;
(h) [reserved]
(i) [reserved]
(j) Borrower shall have delivered
evidence reasonably 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;
(k) 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 Transaction
Report;
(b) the representations and
warranties in Section 5 shall be true in all material respects
on the date of the Transaction Report 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 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 good faith
business judgment, 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
a Credit Extension made 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 Credit Extension in the
absence of a required item shall be made in Bank’s sole
discretion.
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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, in order for any
Borrower to obtain an Advance (other than Advances under Sections
2.1.2, 2.1.3, or 2.1.4), Zhone, as agent for all Borrowers, shall
notify Bank (which notice shall be irrevocable) by electronic mail,
facsimile, or telephone by 12:00 p.m. Pacific time on the Funding
Date of the request for such Advance, which notice shall specify on
behalf of which Borrower Zhone is requesting such Advance. 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 in its good faith business
judgment believes is a Responsible Officer or designee.
4 CREATION OF
SECURITY
4.1 Grant of Security
Interest . Each Borrower
hereby grants Bank, to secure the payment and performance in full
of all of the Obligations, continuing security interests in, and
pledges to Bank, all right, title, and interest of such Borrower in
and to 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 interests granted herein are and shall at all times
continue to be first priority perfected security interests in the
Collateral (subject in lien priority only to those Permitted Liens
that are expressly entitled to such priority over the security
interests of Bank by operation of law or by written subordination
agreement duly executed and delivered by Bank in favor of the
holders of such Permitted Liens). If Borrower shall acquire one or
more commercial tort claims involving amounts in excess of $250,000
(individually or in the aggregate with respect to all such acquired
commercial tort claims), Borrower shall promptly notify Bank in a
writing signed by Borrower of the general details thereof (unless
and except to the extent such information would waive the
attorney-client privilege). Such notification to Bank shall
constitute an additional grant, hereunder, of a continuing security
interest in the commercial tort claims and all proceeds thereof to
Bank, and Borrower shall execute and deliver all such documents and
take all such actions as Bank may reasonably request in connection
therewith.
If both this Agreement and the Exim
Loan Agreement are terminated, Bank’s Lien in the Collateral
shall continue until 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 under this Agreement and the Exim Loan Agreement has
terminated, Bank shall, at Borrower’s sole cost and expense,
promptly 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
prohibited under the Loan Documents, by either Borrower or any
other Person, shall be deemed to violate the rights of Bank under
the Code. Such financing statements may indicate the Collateral as
“all assets of the Debtor” or words of similar effect,
or as being of an equal or lesser scope, or with greater detail,
all in Bank’s discretion.
5 REPRESENTATIONS AND
WARRANTIES
Borrower represents, warrants, and
agrees, as follows:
5.1 Due Organization, etc.;
Authorization; Power and Authority; Material Domestic
Subsidiaries.
(a) Borrower and each of its
Subsidiaries are duly existing and in good standing 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 result in
a Material Adverse Change; provided , however , that
with respect to Xybridge Technologies, Inc., a Texas corporation
(which is not in good standing with the Texas Comptroller of Public
Accounts as of February 20, 2009), Borrower shall deliver to
Bank, no later than 60 days
8
following the Effective Date,
evidence of Xybridge Technologies, Inc.’s good standing with
the Texas Comptroller of Public Accounts as of a date on or after
the Effective Date. In connection with this Agreement, Borrower has
delivered to Bank, a separate completed certificate (for each of
the Borrowers), dated on or about the Effective Date, signed by the
applicable Borrower (individually and collectively, the “
Perfection Certificate ”). Borrower represents and
warrants to Bank that: (i) Borrower’s exact legal name
is that indicated on the Perfection Certificate and on the
signature page hereof; (ii) Borrower is an organization of the
type and is organized in the jurisdiction set forth in the
Perfection Certificate; (iii) the Perfection Certificate
accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none;
(iv) 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); (v) 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, in
each case, except as expressly identified in the Perfection
Certificate; and (vi) all other information set forth on the
Perfection Certificate pertaining to Borrower and each of its
Subsidiaries is accurate and complete in all material respects (it
being understood and agreed that Borrower may from time to time
update certain information in the Perfection Certificate after the
Effective Date to the extent permitted by one or more specific
provisions in this Agreement). 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.
(b) The execution, delivery and
performance by Borrower of the Loan Documents to which it is a
party have been duly authorized, and do not (i) conflict with
any of Borrower’s organizational documents,
(ii) contravene, conflict with, constitute a default under or
violate any material Requirement of Law, (iii) contravene,
conflict or violate, in any material respect, any applicable order,
writ, judgment, injunction, decree, determination or award of any
Governmental Authority by which Borrower or any its Subsidiaries or
any of their property or assets (other than immaterial property and
immaterial assets) may be bound or affected, (iv) require any
action by, filing, registration, or qualification with, or
Governmental Approval from, any Governmental Authority (except such
Governmental Approvals which have already been obtained and are in
full force and effect), or (v) 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 result in a Material Adverse Change.
(c) Concurrently herewith, Borrower
has caused the following companies (the “Existing
Guarantors”) to each execute and deliver to Bank the Guaranty
and the Guarantor Security Agreement:
(1) Paradyne Corporation;
(2) Paradyne Networks,
Inc.;
(3) Premisys Communications,
Inc.;
(4) Xybridge Technologies, Inc.;
and
(5) Zhone Technologies
International, Inc.
Borrower represents and warrants
that the Existing Guarantors are all of its domestic subsidiaries
constituting Material Domestic Subsidiaries (as defined below) as
of the Effective Date, except for Zhone Technologies Campus, LLC
(“Campus”), which Borrower represents and warrants is a
special purpose limited liability company whose sole asset is real
property utilized by Borrower and which is not permitted to
guaranty the obligations of the Borrower under its agreement with
its lender. In the event that, in the future, any other Domestic
Subsidiaries of Borrower become Material Domestic Subsidiaries,
Borrower shall promptly cause any such additional Domestic
Subsidiaries to execute and deliver to Bank a Guaranty and a
Security Agreement, together with related documentation and
certified resolutions or other evidence of authority with respect
to the execution and delivery of such Loan Documents. Throughout
the term of this Agreement Borrower shall cause the Guaranties and
Security Agreements referred to in this Section to continue in full
force and effect. It is acknowledged that the former California
corporation domestic subsidiary of Borrower known as VPacket
Communications, Inc. was merged with and into ZMS-III on or about
12/18/2006.
9
As used herein, the term
“Material Domestic Subsidiary” means any domestic
subsidiary of Borrower, other than a domestic subsidiary of
Borrower that has less than $200,000 in tangible assets and less
than $1,000,000 in fair market value of total assets.
5.2 Collateral.
(a) 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 and deposit accounts
described in the Perfection Certificate delivered to Bank in
connection herewith or as disclosed to Bank pursuant to
Section 6.8(b), other than deposit accounts not required to be
disclosed pursuant to Section 6.8(b). The Accounts are bona
fide, existing obligations of the Account Debtors.
(b) The Collateral is not in the possession of any
third party bailee (such as a warehouse), except for Permitted
Locations. None of the components of the Collateral with an
aggregate value in excess of $500,000 shall be maintained at
locations other than Permitted Locations or as permitted pursuant
to Section 7.2. In the event that Borrower, after the date
hereof, intends to store or otherwise deliver any portion of the
Collateral with an aggregate value in excess of $500,000 to any one
or more bailees, then Borrower shall, promptly upon Bank’s
request therefor, use commercially reasonable efforts to deliver to
Bank a bailee agreement (in form and substance satisfactory to Bank
in its good faith business judgment) duly executed by such bailee.
In the event that Bank requests such a bailee agreement and
Borrower uses such efforts but does not succeed in delivering such
a bailee agreement, Bank may (in its good faith business judgment)
maintain a Reserve with respect to the Collateral located with such
bailee.
(c) With respect to any leased premises of Borrower
at which Collateral with an aggregate value of more than $500,000
is located, Borrower shall, promptly upon Bank’s request
therefor, use commercially reasonable efforts to deliver to Bank a
landlord agreement (in form and substance satisfactory to Bank in
its good faith business judgment) duly executed by the lessor of
such leased premises. Without limiting the generality of the
foregoing, Borrower shall use such efforts to obtain from the
applicable landlord, no later than 60 days following the Effective
Date, landlord agreements (in form and substance satisfactory to
Bank) duly executed by such landlords in favor of Bank in respect
of the following leased locations of Borrower: (1) 7001
Oakport Street, Oakland, CA 94621; (2) 8545 126th Avenue N. (G
Building), Largo, FL 33773; and (3) 8625 126th Avenue N.,
Suite 100 (H Building), Largo, FL 33773. In the event that Bank
requests such a landlord agreement and Borrower uses such efforts
but does not succeed in delivering such a landlord agreement, Bank
may (in its good faith business judgment) maintain a Reserve with
respect to such leased premises.
(d) All Inventory is in all material respects of
good and marketable quality, free from material defects, except for
Inventory for which adequate reserves are maintained in accordance
with GAAP.
(e) Borrower is the sole owner of its intellectual
property, except for (i) non-exclusive licenses granted by
Borrower as licensor to third-parties, and (ii) such
intellectual property as is licensed by Borrower as a licensee.
Each patent owned by Borrower that is material to Borrower’s
business is valid and enforceable, and, to Borrower’s
knowledge, no part of the intellectual property that is material to
Borrower’s business has been judged invalid or unenforceable,
in whole or in part, and to Borrower’s knowledge, no claim
has been made that any part of the intellectual property that is
material to Borrower’s business violates, in any material
respect, the rights of any third party, except to the extent such
claim could not reasonably be expected to result in a Material
Adverse Change.
(f) Except as noted on the Perfection Certificate
(or as disclosed to Bank in written updates of the Perfection
Certificate with respect to the following), Borrower is not a party
to, nor is bound by, any material license or other agreement with
respect to which Borrower is the licensee (other than
over-the-counter or shrink-wrap software licenses generally
available to the public) relating to any material product lines of
Borrower or Guarantor (i) that prohibits or otherwise
restricts Borrower from granting a security interest in
Borrower’s interest in such license or agreement or any other
property (to the extent such prohibition is enforceable), or
(ii) for which a default under or termination of could
interfere in any material respect with Bank’s right to sell
any Collateral. Borrower shall provide written notice to Bank
within thirty (30) 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). Upon Bank’s request, Borrower shall
use commercially reasonable efforts to promptly obtain the consent
of, or waiver by, any person
10
whose consent or waiver is necessary
for (x) all such licenses or agreements to be deemed
“Collateral” and for Bank to have a security interest
in the same that is otherwise restricted or prohibited by law or by
the terms of any such license or agreement, whether now existing or
entered into in the future, and (y) Bank to have the ability
in the event of a liquidation of any Collateral to dispose of such
Collateral in accordance with Bank’s rights and remedies
under this Agreement and the other Loan Documents. If Borrower is
unsuccessful in obtaining any such consent or waiver requested by
Bank, then Borrower shall notify Bank in writing of
same.
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 such Eligible Accounts are and shall be true
and correct in all material respects as of the date such statement
is made or such unpaid balance is disclosed to Bank, and all such
invoices, instruments and other documents, and all of
Borrower’s Books, are genuine and in all material respects
what they purport to be. Whether or not an Event of Default has
occurred and is continuing, Bank may notify any Account Debtor
owing Borrower money of Bank’s security interest in such
funds and verify the amount of such Eligible Account. 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 shown as Eligible Accounts in any Transaction
Report. To the best of Borrower’s knowledge, all signatures
and endorsements on all documents, instruments, and agreements
relating to all Eligible Accounts are and will be genuine, and, to
the best of Borrower’s knowledge, all such documents,
instruments and agreements are and will be legally enforceable in
accordance with their terms.
5.4 Litigation
. Except as disclosed to the Bank in
writing, 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
$250,000 or more in the aggregate.
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 as of the date
of such financial statements, except that that interim financial
statements may be subject to normal year-end audit adjustments
(which will not be material in the aggregate) and need not contain
footnote disclosures required by GAAP. 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, as amended. Borrower is
not engaged as one of its important activities in extending credit
for margin stock (under Regulations X, T and U of the Federal
Reserve Board of Governors). Borrower has complied in all material
respects with the Federal Fair Labor Standards Act. Neither
Borrower nor any of its Subsidiaries is a “holding
company” or an “affiliate” of a “holding
company” or a “subsidiary company” of a
“holding company” as each term is defined and used in
the Public Utility Holding Company Act of 2005. Borrower has not
violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change.
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 businesses as currently
conducted.
5.8 Subsidiaries;
Investments . Borrower
does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
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5.9 Tax Returns and Payments;
Pension Contributions .
Borrower has timely filed (i) all required federal tax returns
and reports, and (ii) all required state, local, and foreign,
material tax returns and reports. Subject to Borrower’s right
to contest taxes in accordance with the immediately following
sentence, Borrower has timely paid all federal taxes, assessments,
deposits and contributions owed by Borrower, and all state, local,
and foreign, material 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, such proceedings, and (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 and which
have not been timely discharged or contested in accordance with the
immediately preceding sentence. 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 for the purposes specified in the Exim
Borrower Agreement, and Borrower will not use the proceeds of the
Exim Loans for any purpose prohibited by the Exim Borrower
Agreement. Without limiting the generality of the foregoing, any
“Credit Accommodations” (as such term is defined in the
Exim Borrower Agreement) made by Bank to Borrower for any of the
purposes set forth in Section 2.01(a)(i)-(iv) of the Exim
Borrower Agreement shall be deemed made under (and shall be subject
to the terms and conditions of) the Non-Exim Loan Agreement as a
Non-Exim Loan instead of under this Agreement as an Exim
Loan.
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).
6 AFFIRMATIVE
COVENANTS
Borrower shall do all of the
following:
6.1 Government
Compliance .
(a) 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 cause a
Material Adverse Change; provided , however , that
with respect to Xybridge Technologies, Inc., a Texas corporation
(which is not in good standing with the Texas Comptroller of Public
Accounts as of February 20, 2009), Borrower shall deliver to
Bank, no later than 60 days following the Effective Date, evidence
of Xybridge Technologies, Inc.’s good standing with the Texas
Comptroller of Public Accounts as of a date on or after the
Effective Date. Borrower shall comply, and have each Subsidiary
comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could reasonably be expected to
cause a Material Adverse Change.
(b) Obtain all of the Governmental
Approvals necessary for the performance by Borrower of its
obligations under the Loan Documents to which it is a party and the
grant of a security interest to Bank in all of its property.
Borrower shall promptly provide copies of any such obtained
Governmental Approvals to Bank.
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6.2 Financial Statements,
Reports, Certificates.
(a) Borrower shall provide Bank with
the following written reports, and such other written reports with
respect to Borrower (including budgets, sales projections,
operating plans and other financial documentation, and lists of
stockholders of record), as Bank shall from time to time specify in
its good faith business judgment:
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(i)
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a Transaction
Report, (i) at the time of each Advance, and (ii) so long
as any Advance is outstanding, in addition not less frequently than
weekly;
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(ii)
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within fifteen
(15) days after the end of each month:
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(A)
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(1) monthly
accounts receivable agings, aged by invoice date; and
(2) concurrently with such monthly accounts receivable agings
in respect of any month that is also the last month of a fiscal
quarter, copies of actual invoices in respect of Eligible Accounts
representing not less than 10% of the aggregate accounts receivable
agings balance as of the end of such last month of a fiscal
quarter;
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(B)
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monthly
accounts payable agings, aged by invoice date, and outstanding or
held check registers, if any;
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(C)
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monthly
reconciliations of accounts receivable agings (aged by invoice
date), Transaction Reports, and general ledger;
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(D)
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[intentionally
omitted]
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(E)
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monthly
Deferred Revenue reports;
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(iii)
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as soon as
available, and in any event within thirty (30) days after the
end of each month, monthly unaudited financial
statements;
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(iv)
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within thirty
(30) days after the end of each month 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;
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(v)
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within thirty
(30) days after the end of each fiscal quarter, a written
status update with respect to Borrower’s ongoing discussions
with the New Jersey tax authority regarding the New Jersey
sales & use tax obligation of Zhone (for the period
covering 10/01/2001 – 09/30/2003) described in the Perfection
Certificate; provided, however, that in addition, Borrower shall
also deliver such a status update (irrespective of whether such
quarterly report is then due) of, and promptly upon, the occurrence
of a material adverse development (if any) in such discussions with
the New Jersey tax authority regarding such tax
obligation;
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(vi)
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as soon as
available, and in any event within thirty (30) days prior to
the end of each fiscal year of Borrower, (A) annual financial
projections and operating budgets (including income statements,
balance sheets and cash flow statements, by month) for the upcoming
fiscal year (on a monthly basis) of Borrower, as approved by
Borrower’s board of directors; and
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(vii)
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as soon as
available, and in any event within 120 days following the end of
Borrower’s fiscal year, annual financial statements certified
by, and with an unqualified opinion of, independent certified
public accountants reasonably acceptable to Bank.
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(b) At all times that Borrower is
subject to the reporting requirements under the Securities Exchange
Act of 1934, as amended, within five (5) days after 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.
(c) Prompt written notice of
(i) any material change in the composition of the intellectual
property, (ii) the registration (or filed application for
registration) of any copyright (including any subsequent ownership
right of Borrower in or to any copyright), any patent (including
any subsequent ownership right of Borrower in or to any patent)
constituting Material Intellectual Property, or any trademark
(including any subsequent ownership right of Borrower in or to any
trademark) constituting Material Intellectual Property, in each
case, that is not previously disclosed in writing to Bank, or
(iii) Borrower’s knowledge of an event that materially
adversely affects the value of the intellectual
property.
13
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) 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.
Without limiting the generality of the foregoing, Borrower shall
deliver to Bank the copies of the invoices required under
Section 6.2(a)(ii)(A)(2) above. In addition, Borrower shall
deliver to Bank, on its request, the originals 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 endorsements, and copies of all
credit memos.
(b) Disputes . Borrower shall
promptly notify Bank of all disputes or claims relating to
Accounts, in excess of $250,000 individually or in the aggregate at
any one time, on the Transaction Reports. 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 Event of Default
has occurred and is continuing; and (iii) after taking into
account all such discounts, settlements and forgiveness, no
Overadvance exists.
(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, which payments and proceeds shall 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 Accounts be deposited by 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.
(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) in the event that the amount of such credit
memorandum, individually or in the aggregate, exceeds $250,000,
provide a copy of each such credit memorandum to 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 immediately 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 the
following Business Day after receipt by Borrower, which, shall be
dealt with as provided in Section 6.3(c); provided that, if no
Default or Event of Default has occurred and is continuing,
Borrower shall not be
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obligated to remit to Bank the proceeds of the
sale of worn out, surplus, or obsolete Equipment disposed of by
Borrower in good faith in an arm’s length transaction for an
aggregate purchase price of $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, and require each of
its Subsidiaries to timely file, all required federal tax returns
and reports (and all required state, local, and foreign, material
tax returns and reports), and timely pay, and require each of its
Subsidiaries to timely file, all federal taxes, assessments,
deposits and contributions (and all state, local, and foreign,
material taxes, assessments, deposits and contributions) owed by
Borrower and each of its Subsidiaries, except for deferred payment
of any taxes contested 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.
6.6 Access to Collateral; Books
and Records . At
reasonable times, on at least one (1) Business Day’s
notice (provided no notice is required if an Event of Default has
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; provided, however, that, so long as no
Event of Default has occurred and is continuing, any audits shall
be conducted no more often than once every 6 months (it being
understood that audits taking place at one or more locations of
Borrower during substantially the same overall examination period
shall constitute but a single audit for purposes of the foregoing
proviso). The foregoing inspections and audits shall be at
Borrower’s expense, and the charge therefor shall be $750 per
person per day (or 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.
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 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 lender 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 (subject only to the
applicable senior claims of those holders of Permitted Liens that
are expressly entitled to lien priority over the security interests
of Bank in the applicable insured Collateral by operation of law or
by written subordination agreement duly executed and delivered by
Bank in favor of the holders of such Permitted Liens), at
Bank’s option, be payable to Bank on account of the
Obligations. Notwithstanding the foregoing, (a) so long as no
Event of Default has occurred and is continuing, Borrower shall
have the option of applying the proceeds of any casualty policy up
to $250,000, in the aggregate, toward the replacement or repair of
destroyed or damaged property; provided that any such replaced or
repaired property shall be deemed Collateral in which Bank has
been granted a first priority security interest (subject in lien
priority only to those Permitted Liens described in clause
(c) of the definition of “Permitted Liens”, if
any, that are applicable to such replaced or repaired property),
and (b) after the occurrence and during the continuance of an
Event of Default, all proceeds payable under such casualty policy
shall, at the option of Bank, 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.
6.8 Operating
Accounts.
(a) Maintain all of its and its
Subsidiaries’ primary depository and operating accounts and
securities accounts with Bank and Bank’s Affiliates, which
accounts shall represent at least 85% of the dollar value of
Borrower’s and such Subsidiaries accounts at all financial
institutions.
15
(b) Provide Bank five (5) days
prior written notice before Borrower or any of its Subsidiaries
establishes or has any Collateral Account at or with any bank or
financial institution other than Bank or Bank’s Affiliates,
if such Collateral Account is not expressly identified on the
Perfection Certificate and if Borrower holds a balance of more than
$20,000 in such Collateral Account (except that the total of
amounts in all Collateral Accounts with a balance of $20,000 or
less and as to which written notice of the same is not given to
Bank shall not exceed $250,000 in the aggregate). In addition, for
each Collateral Account that Borrower or any Guarantor at any time
maintains, Borrower shall, upon Bank’s request, cause the
applicable bank or financial institution (other than Bank) at or
with which any such 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. The
provisions of the previous sentence shall not apply to
(i) deposit accounts exclusively used for payroll, payroll
taxes and other employee wage and benefit payments to or for the
benefit of Borrower’s or Guarantor’s employees and
identified to Bank by Borrower or Guarantor as such, and
(ii) deposit accounts located outside the United States used
to facilitate payment of local operating expenses provided that the
amount on deposit in any such account described in this clause
(ii) shall not exceed, at any time, the amount necessary to
fund operating expenses for such jurisdiction for the then current
fiscal quarter. Without limiting the generality of the foregoing,
Borrower and Bank hereby agree that: (1) no later than 60 days
following the Effective Date, Borrower and Guarantor shall cause
Wachovia Bank to execute and deliver such a Control Agreement in
favor of Bank with respect to the Collateral Accounts of Borrower
and Guarantor maintained with Wachovia Bank; and (2) no
Control Agreement by Wells Fargo in favor of Bank shall be required
under this Section 6.8(b) so long as the total amount of funds
of all Borrowers and all Guarantors on deposit in any and all
Collateral Accounts of Borrower and Guarantor maintained with Wells
Fargo does not exceed $250,000 in the aggregate.
6.9 Financial
Covenants . Borrower
shall maintain at all times, to be tested as of the last day of
each month, unless otherwise noted, on a consolidated basis with
respect to Borrower and its Subsidiaries:
(a) Minimum Liquidity Ratio .
As of the end of each month, commencing March 31, 2009, and
continuing as of the end of each month thereafter, Borrower shall
maintain a Liquidity Ratio of at least 2.00 to 1.00.
As used herein, the term “
Liquidity Ratio ” means, as of any date of
determination, the ratio of:
(A) the total of Borrower’s
unrestricted cash, as shown on Borrower’s consolidated
balance sheet, plus the sum of the net amount of Eligible Accounts
under this Agreement and the net amount of “Eligible
Accounts” under the Exim Loan Agreement;
to
(B) the aggregate amount of all
outstandin
