Exhibit 10.11
SECOND AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Agreement") dated as of the Effective Date is
between SILICON VALLEY BANK, a California corporation ("
Bank "), and SOCKET MOBILE, INC., a Delaware corporation ("
Borrower "), provides the terms on which Bank shall lend to
Borrower and Borrower shall repay Bank. The parties agree as
follows:
RECITALS
A. Borrower and Bank have entered into that certain Amended and
Restated Loan and Security Agreement dated March 24, 2008 (as the
same has been amended, restated, or otherwise modified from time to
time, the "Original Domestic Agreement") pursuant to which Bank has
agreed to extend and make available to Borrower certain credit
facilities.
B. Borrower and Bank have agreed to amend and restate the
Original Domestic Agreement in its entirety pursuant to the terms
of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Bank and
Borrower agree that the Original Domestic Agreement is amended and
restated in its entirety as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be
construed following GAAP. Calculations and determinations must be
made following GAAP. The term "financial statements" includes the
notes and schedules. The terms "including" and "includes" always
mean "including (or includes) without limitation," in this or any
Loan Document. 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 meanings 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 unpaid principal amount of
all Advances hereunder with all interest, fees and finance charges
due thereon as and when due in accordance with this Agreement.
2.1.1 Financing of Accounts .
(a) Availability . Subject to the terms of this
Agreement, Borrower may request that Bank finance specific Eligible
Accounts. Bank may, in its sole discretion in each instance,
finance such Eligible Accounts by extending credit to Borrower in
an amount equal to the result of the Advance Rate multiplied by the
face amount of the Eligible Account (the "Advance"). Bank may, in
its sole discretion, change the percentage of the Advance Rate for
a particular Eligible Account on a case by case basis. When Bank
makes an Advance, the Eligible Account becomes a "Financed
Receivable."
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(b) Maximum Advances . The aggregate outstanding amount
of all Advances, outstanding at any time may not exceed One Million
Dollars ($1,000,000). Notwithstanding any other term or provision
of this Agreement, the aggregate amount of Advances hereunder
together with the aggregate amount of loan advances under the EXIM
Agreement shall not at any event exceed Two Million Five Hundred
Thousand Dollars ($2,500,000).
(c) Borrowing Procedure . Borrower will deliver an
Invoice Transmittal for each Eligible Account it offers. Bank may
rely on information set forth in or provided with the Invoice
Transmittal.
(d) Credit Quality; Confirmations . Bank may, at its
option, conduct a credit check of the Account Debtor for each
Account requested by Borrower for financing hereunder in order to
approve any such Account Debtor's credit before agreeing to finance
such Account. Bank may also verify directly with the respective
Account Debtors the validity, amount and other matters relating to
the Accounts (including confirmations of Borrower's representations
in Section 5.3) by means of mail, telephone or otherwise, either in
the name of Borrower or Bank from time to time in its sole
discretion.
(e) Accounts Notification/Collection . Bank may notify
any Person owing Borrower money of Bank's security interest in the
funds and verify and/or collect the amount of the Account.
(f) Maturity . This Agreement shall terminate and all
Obligations outstanding hereunder shall be immediately due and
payable on the Maturity Date.
(g) Bank's Discretion . Notwithstanding anything to the
contrary contained herein, this Agreement may be terminated by
Borrower or Bank at any time, and Bank is not obligated to finance
any Eligible Accounts. Bank and Borrower hereby acknowledge and
agree that Bank's agreement to finance Eligible Accounts hereunder
is discretionary in each instance. Accordingly, there shall not be
any recourse to Bank, nor liability of Bank, on account of any
delay in Bank's making of, and/or any decline by Bank to make, any
loan or advance requested hereunder. If this Agreement is
terminated by Bank or Borrower for any reason, Borrower shall pay
to Bank a termination fee in an amount equal to one percent (1.0%)
of the Facility Amount (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
re-document this Agreement under another division of Bank (in its
sole and exclusive discretion) prior to the Maturity Date.
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2.1.2 EXIM Agreement . Bank and Borrower are
parties to an EXIM Agreement. Both this Agreement and the EXIM
Agreement shall continue in full forced and effect, and all rights
and remedies under this Agreement and EXIM Agreement are
cumulative. The term "Obligations" as used in the Agreement and in
the EXIM Agreement shall include, without limitation, the
obligation to pay when due all Credit Extensions made pursuant to
this Agreement (the " Non-EXIM Loans ") and all interest
thereof and the obligation to apply when due all Credit Extensions
made pursuant to the EXIM Agreement (the " EXIM Loans ") and
all interest thereon. Without limiting the generality of the
foregoing, all "Collateral" as defined in this Agreement and
defined in the EXIM Agreement shall secure all EXIM Loans and all
Non-EXIM Loans and all interest thereon, and all other Obligations.
Any Event of Default under this Agreement shall also constitute an
Event of Default under the EXIM Agreement and any Event of Default
under the EXIM Agreement shall constitute an Event of Default under
this Agreement. In the event Bank assigns its right under the EXIM
Agreement or its rights under this Agreement to any third party,
including without limitation, the Export-Import Bank of the United
States (" EXIM Bank "), whether before or after the
occurrence of any Event of Default, Bank shall the right (but not
any obligation), it its sole discretion, to allocate and apportion
Collateral to this Agreement and/or to specify the priorities of
the respective security interests in such Collateral between itself
and the assignee, all without notice to, or consent of,
Borrower.
2.2 Collections, Finance Charges, Remittances and Fees
. The Obligations shall be subject to the following fees and
Finance Charges. Unpaid fees and Finance Charges may, in Bank's
discretion, accrue interest and fees as described in Section 9.2
hereof.
2.2.1 Collections . Collections will be credited
to the Financed Receivable Balance for such Financed Receivable,
but if there is an Event of Default, Bank may apply Collections to
the Obligations in any order it chooses. If Bank receives a payment
for both a Financed Receivable and a non-Financed Receivable, the
funds will first be applied to the Financed Receivable and, if
there is no Event of Default then existing, the excess will be
remitted to Borrower, subject to Section 2.2.6.
2.2.2 Facility Fee . A fully earned, non
refundable facility fee of Twenty Five Thousand Dollars ($25,000)
is due upon execution of this Agreement (the " Facility Fee
").
2.2.3 Finance Charges . In computing Finance
Charges on the Obligations under this Agreement, all Collections
received by Bank shall be deemed applied by Bank on account of the
Obligations three (3) Business Days after receipt of the
Collections. Borrower will pay a finance charge (the " Finance
Charge ") on the Financed Receivable Balance which is equal to
the Applicable Rate divided by 360 multiplied by the number of days
each such Financed Receivable is outstanding multiplied by the
outstanding Financed Receivable Balance. The Finance Charge is
payable when the Advance made based on such Financed Receivable is
payable in accordance with Section 2.3 hereof. Because the Advance
Rate may differ based on the type of Eligible Account, the Bank
will from time to time, adjust the Finance Charge on Advances made
at an Advance Rate of 60% so that the effective Finance Charge on
such Advances is reasonably equivalent to the Finance Charge which
applies to Advances based on an 80% Advance Rate. After an Event of
Default, the Applicable Rate will increase an additional five
percent (5.0%) per annum effective immediately upon the occurrence
of such Event of Default.
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2.2.4 Collateral Handling Fee . Borrower will pay
to Bank a collateral handling fee equal to seven tenths of one
percent (0.70%) per month of the Financed Receivable Balance for
each Financed Receivable outstanding based upon a 360 day year (the
" Collateral Handling Fee "). This fee is charged on a daily
basis which is equal to the Collateral Handling Fee divided by 30,
multiplied by the number of days each such Financed Receivable is
outstanding, multiplied by the outstanding Financed Receivable
Balance. The Collateral Handling Fee is payable when the Advance
made based on such Financed Receivable is payable in accordance
with Section 2.3 hereof. In computing Collateral Handling Fees
under this Agreement, all Collections received by Bank shall be
deemed applied by Bank on account of Obligations three (3) Business
Days after receipt of the Collections. After an Event of Default,
the Collateral Handling Fee will increase an additional 0.50%
effective immediately upon such Event of Default.
2.2.5 Accounting . After each Reconciliation
Period, Bank will provide an accounting of the transactions for
that Reconciliation Period, including the amount of all Financed
Receivables, all Collections, Adjustments, Finance Charges,
Collateral Handling Fee and the Facility Fee. If Borrower does not
object to the accounting in writing within thirty (30) days it
shall be considered accurate. All Finance Charges and other
interest and fees are calculated on the basis of a 360 day year and
actual days elapsed.
2.2.6 Deductions . Bank may deduct fees, Finance
Charges, Advances which become due pursuant to Section 2.3, and
other amounts due pursuant to this Agreement from any Advances made
or Collections received by Bank.
2.2.7 Lockbox; Account Collection Services .
(a) Borrower shall direct each Account Debtor (and each
depository institution where proceeds of Accounts are on deposit)
to remit payments with respect to the Accounts to a lockbox account
established with Bank or to wire transfer payments to a cash
collateral account that Bank controls (collectively, the "
Lockbox "). It will be considered an immediate Event of
Default if the Lockbox is not set-up and operational on the
Effective Date.
(b) In the event Borrower receives any proceeds that should be
paid into the Lockbox, upon receipt by Borrower of such proceeds,
Borrower shall immediately transfer and deliver same to Bank, along
with a detailed cash receipts journal. Provided no Event of Default
exists or an event that with notice or lapse of time will be an
Event of Default, within three (3) days of receipt of such amounts
by Bank, Bank will turn over to Borrower the proceeds of the
Accounts other than Collections with respect to Financed
Receivables and the amount of Collections in excess of the amounts
for which Bank has made an Advance to Borrower, less any amounts
due to Bank, such as the Finance Charge, the Facility Fee, payments
due to Bank, other fees and expenses, or otherwise; provided,
however, Bank may hold such excess amount with respect to Financed
Receivables as a reserve until the end of the applicable
Reconciliation Period if Bank, in its discretion, determines that
other Financed Receivable(s) may no longer qualify as an Eligible
Account at any time prior to the end of the subject Reconciliation
Period. This Section does not impose any affirmative duty on Bank
to perform any act other than as specifically set forth herein. All
Accounts and the proceeds thereof are Collateral and if an Event of
Default occurs, Bank may apply the proceeds of such Accounts to the
Obligations.
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2.2.8 Bank Expenses . Borrower shall pay all Bank
Expenses (including reasonable attorneys' fees and expenses, plus
expenses, for documentation and negotiation of this Agreement)
incurred through and after the Effective Date, when due.
2.3 Repayment of Obligations; Adjustments .
2.3.1 Repayment . Borrower will repay each Advance
on the earliest of: (a) the date on which payment is received of
the Financed Receivable with respect to which the Advance was made,
(b) the date on which the Financed Receivable is no longer an
Eligible Account, (c) the date on which any Adjustment is asserted
to the Financed Receivable (but only to the extent of the
Adjustment if the Financed Receivable remains otherwise an Eligible
Account), (d) the date on which there is a breach of any warranty
or representation set forth in Section 5.3, or a breach of any
covenant in this Agreement or (e) the Maturity Date (including any
early termination). Each payment will also include all accrued
Finance Charges and Collateral Handling Fees with respect to such
Advance and all other amounts then due and payable hereunder.
2.3.2 Repayment on Event of Default . When there
is an Event of Default, Borrower will, if Bank demands (or, upon
the occurrence of an Event of Default under Section 8.3,
immediately without notice or demand from Bank) repay all of the
Advances. The demand may, at Bank's option, include the Advance for
each Financed Receivable then outstanding and all accrued Finance
Charges, the Early Termination Fee, Collateral Handling Fee,
attorneys' and professional fees, court costs and expenses, and any
other Obligations.
2.3.3 Debit of Accounts . Bank may debit any of
Borrower's deposit accounts for payments or any amounts Borrower
owes Bank hereunder. Bank shall promptly notify Borrower when it
debits Borrower's accounts. These debits shall not constitute a
set-off.
2.3.4 Adjustments . If, at any time during the
term of this Agreement, any Account Debtor asserts an Adjustment,
Borrower issues a credit memorandum, or any of the representations
and warranties in Section 5.3 or covenants in this Agreement are no
longer true in all material respects, Borrower will promptly advise
Bank.
2.4 Power of Attorney . Borrower irrevocably
appoints Bank and its successors and assigns as attorney-in-fact
and authorizes Bank, regardless of whether there has been an Event
of Default, to: (a) sell, assign, transfer, pledge, compromise, or
discharge all or any part of the Financed Receivables; (b) demand,
collect, sue, and give releases to any Account Debtor for monies
due and compromise, prosecute, or defend any action, claim, case or
proceeding about the Financed Receivables, including filing a claim
or voting a claim in any bankruptcy case in Bank's or Borrower's
name, as Bank chooses; (c) prepare, file and sign Borrower's name
on any notice, claim, assignment, demand, draft, or notice of or
satisfaction of lien or mechanics' lien or similar document; (d)
notify all Account Debtors to pay Bank directly; (e) receive, open,
and dispose of mail addressed to Borrower; (f) endorse Borrower's
name on checks or other instruments (to the extent necessary to pay
amounts owed pursuant to this Agreement); and (g) execute on
Borrower's behalf any instruments, documents, financing statements
to perfect Bank's interests in the Financed Receivables and
Collateral and do all acts and things necessary or expedient, as
determined solely and exclusively by Bank, to protect, preserve,
and otherwise enforce Bank's rights and remedies under this
Agreement, as directed by Bank.
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3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance .
Bank's agreement to make the initial Advance is subject to the
condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, such documents, and completion of
such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation:
(a) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(b) an Addendum to the Intellectual Property Security
Agreement;
(c) Perfection Certificate by Borrower;
(d) Account Control Agreement/ Investment Account Control
Agreement;
(e) evidence satisfactory to Bank that the insurance policies
required by Section 6.4 hereof are in full force and effect,
together with appropriate evidence showing lender loss payable
and/or additional insured clauses or endorsements in favor of
Bank;
(f) payment of the fees and Bank Expenses then due and
payable;
(g) Certificate of Foreign Qualification in California;
(h) Certificate of Good Standing from Delaware; and
(i) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances . Bank's
agreement to make each Advance, including the initial Advance, is
subject to the following:
(a) receipt of the Invoice Transmittal;
(b) Bank shall have (at its option) conducted the confirmations
and verifications as described in Section 2.1.1(d); and
(c) each of the representations and warranties in Section 5
shall be true on the date of the Invoice Transmittal and on the
effective date of each Advance and no Event of Default shall have
occurred and be continuing, or result from the Advance. Each
Advance is Borrower's representation and warranty on that date that
the representations and warranties in Section 5 remain true.
(d) in Bank's sole discretion, any
material impairment in the general affairs, management, results of
operation, financial condition or the prospect of repayment of the
Obligations, or there has not been any material adverse deviation
by Borrower from the most recent business plan of Borrower
presented to and accepted by Bank.
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4. 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 shall be a first priority security
interest in the Collateral. If Borrower shall at any time, 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 satisfactory to Bank.
If this Agreement is 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 and at such time as Bank's obligation to
make Advances 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. Any 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 and warrants as follows:
5.1 Due Organization and Authorization . Borrower
is duly existing and in good standing as a Registered Organization
in the State of Delaware and is qualified and licensed to do
business and are in good standing in any jurisdiction in which the
conduct of their respective business or 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 certificate signed by Borrower,
entitled "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 (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.
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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 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 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 have a material adverse effect
on Borrower's business.
5.2 Collateral . Borrower has good title, 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. None of the components of the Collateral
shall be maintained at locations other than as provided in the
Perfection Certificate 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 to a bailee, 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 sole discretion.
Borrower is the sole owner of its intellectual property, except
for non-exclusive licenses granted to its customers in the ordinary
course of business. Each patent is valid and enforceable, and no
part of the intellectual property has been judged invalid or
unenforceable, in whole or in part, and to the best of Borrower's
knowledge, no claim has been made that any part of the intellectual
property violates the rights of any third party except to the
extent such claim could not reasonably be expected to have a
material adverse effect on Borrower's business. Except as noted on
the Perfection Certificate, Borrower is not a party to, nor is
bound by, any material license or other agreement with respect to
which Borrower is the licensee (a) that prohibits or otherwise
restricts Borrower from granting a security interest in Borrower's
interest in such license or agreement or any other property, or (b)
for which a default under or termination of could interfere with
the Bank's right to sell any Collateral. Without prior consent from
Bank, Borrower shall not enter into, or become bound by, any such
license or agreement which is reasonably likely to have a material
impact on Borrower's business or financial condition. 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, whether now existing or entered into in the
future.
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5.3 Financed Receivables . Borrower represents and
warrants for each Financed Receivable:
(a) Such Financed Receivable is an Eligible Account;
(b) Borrower is the owner of and has the legal right to sell,
transfer, assign and encumber such Financed Receivable;
(c) The correct amount is on the Invoice Transmittal and is not
disputed;
(d) Payment is not contingent on any obligation or contract and
Borrower has fulfilled all its obligations as of the Invoice
Transmittal date;
(e) Such Financed Receivable is based on an actual sale and
delivery of goods and/or services rendered, is due to Borrower, is
not past due or in default, has not been previously sold, assigned,
transferred, or pledged and is free of any liens, security
interests and encumbrances other than Permitted Liens;
(f) There are no defenses, offsets, counterclaims or agreements
for which the Account Debtor may claim any deduction or
discount;
(g) Borrower reasonably believes no Account Debtor is insolvent
or subject to any Insolvency Proceedings;
(h) Borrower has not filed or had filed against it Insolvency
Proceedings and does not anticipate any filing;
(i) Bank has the right to endorse and/ or require Borrower to
endorse all payments received on Financed Receivables and all
proceeds of Collateral; and
(j) No representation, warranty or other statement of Borrower
in any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material
fact necessary to make the statement contained in the certificates
or statement not misleading.
5.4 Litigation . There are no actions or
proceedings pending or, to the knowledge of Borrower's Responsible
Officers, threatened in writing by or against Borrower or any
Subsidiary in which an adverse decision could reasonably be
expected to cause a Material Adverse Change.
5.5 No Material Deviation in Financial Statements
. All consolidated financial statements for Borrower and any
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.
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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). 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 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 cause a Material Adverse Change.
None of Borrower's or any Subsidiary's 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
Governmental Authorities that are necessary to continue their
respective businesses as currently conducted.
5.8 Subsidiaries . 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 and each Subsidiary have timely filed all required
tax returns and reports, and Borrower and each Subsidiary have
timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower and each
Subsidiary. 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.
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5.10 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 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 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, noncompliance with which could
have a material adverse effect on Borrower's business.
(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.
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, a company
prepared balance sheet and income statement covering Borrower's
operations during the period certified by a Responsible Officer and
in a form acceptable to Bank; (ii) as soon as available, but no
later than one hundred twenty (120) days after the last day of
Borrower's fiscal year, audited consolidated financial statements
prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent
certified public accounting firm reasonably acceptable to Bank;
(iii) in the event that Borrower's stock becomes publicly held,
within five (5) days of filing, copies of all statements, reports
and notices made available to Borrower's security holders or to any
holders of Subordinated Debt and all reports on Form 10-K, 10-Q and
8 K filed with the Securities and Exchange Commission; (iv) a
prompt report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars
($100,000.00) or more; (v) prompt notice of any material change in
the composition of the Intellectual Property Collateral, or the
registration of any copyright, including any subsequent ownership
right of Borrower in or to any copyright, patent or trademark not
shown in the IP Agreement or knowledge of an event that materially
adversely affects the value of the Intellectual Property
Collateral; (vi) as soon as available, annual financial projections
for the following fiscal year commensurate in form and substance
with those provided to Borrower's venture capital investors; and
(vii) budgets, sales projections, operating plans, "sell-through"
reports, or other financial information reasonably requested by
Bank.
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(b) Within thirty (30) days after the last day of each month,
deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in the form of
Exhibit B .
(c) Allow Bank to audit Borrower's Collateral, including, but
not limited to, Borrower's Accounts at Borrower's expense, upon
reasonable notice to Borrower; provided, however, prior to the
occurrence of an Event of Default, Borrower shall be obligated to
pay for not more than two (2) audits per year and such audits will
not last more than 2-3. After the occurrence of an Event of
Default, Bank may audit Borrower's Collateral, including, but not
limited to, Borrower's Accounts at Borrower's expense and at Bank's
sole and exclusive discretion and without notification and
authorization from Borrower.
(d) Upon Bank's request, provide a written report respecting any
Financed Receivable, if payment of any Financed Receivable does not
occur by its due date and include the reasons for the delay.
(e) Provide Bank with, as soon as available, but no later than
thirty (30) following each Reconciliation Period, an aged listing
of accounts receivable and accounts payable by invoice date, in
form acceptable to Bank.
(f) Provide Bank with, as soon as available, but no later than
thirty (30) days following each Reconciliation Period, a Deferred
Revenue report, in form acceptable to Bank.
6.3 Taxes . Borrower shall make, and cause each
Subsidiary to make, timely payment of all foreign, federal, state,
and local taxes or assessments (other than taxes and assessments
which Borrower is contesting in good faith, with adequate reserves
maintained in accordance with GAAP) and will deliver to Bank, on
demand, appropriate certificates attesting to such payments.
6.4 Insurance . Keep its business and the
Collateral insured for risks and in amounts standard for companies
in Borrower's industry and location, and as Bank may reasonably
request. Insurance policies shall be in a form, with companies, and
in amounts that are satisfactory to Bank. All property policies
shall have a lender's loss payable endorsement showing Bank as the
sole lender loss payee and waive subrogation against Bank, and all
liability policies shall show, or have endorsements showing, Bank
as an additional insured .All policies (or the loss payable and
additional insured endorsements) shall provide that the insurer
must give Bank at least twenty (20) days notice before canceling,
amending, or declining to renew its policy. At Bank's request,
Borrower shall deliver certified copies of policies and evidence of
all premium payments. Proceeds payable under any policy shall, at
Bank's option, be payable to Bank on account of the Obligations. If
Borrower fails to obtain insurance as required under this Section
6.4 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
